Consistent with its role as a leader in the investigation and enforcement of offenses involving cryptocurrencies and other digital assets, on June 30, 2022, the US Department of Justice (DOJ) announced four separate enforcement actions related to cryptocurrency-related fraud and other misconduct, which are summarized below.1 Notably, all four prosecutions involve alleged cross-border wrongdoing in the digital asset space prosecuted pursuant to long-standing fraud-based statutes.
The Enforcement Actions
These enforcement actions reflect the DOJ’s continued focus on a variety of cross-border wrongdoing in the digital asset space.
- Money Laundering and Wire Fraud: In United States v. Le Ahn Tuan, the DOJ charged a Vietnamese national with conspiracy to commit wire fraud and money laundering in connection with his alleged role in carrying out a fraudulent investment scheme involving the “Baller Ape” Non-Fungible Token (NFT).2 The DOJ alleges that the defendant and his co-conspirators launched a fraudulent investment program that claimed to provide investors with an opportunity to purchase Baller Ape NFTs, but after investors transferred their cryptocurrency to the defendant and his co-conspirators, the defendant and his co-conspirators ended the investment program prematurely and stole the investors’ assets.3 Thereafter, the defendant allegedly engaged in “chain-hopping,” which involves, among other things, converting one type of cryptocurrency to another to disguise the source of the funds and can constitute a form of money laundering.4
- Securities Fraud, Wire Fraud, and International Money Laundering: In United States v. Emerson Pires, et al., the DOJ charged Brazilian and US nationals with conspiracy to commit securities fraud, wire fraud, and international money laundering in connection with a “global cryptocurrency-based Ponzi scheme.”5 The defendants are alleged to have promoted their cryptocurrency investment platform through, among other things, misrepresentations about a proprietary trading bot and their ability to generate guaranteed returns and operated a Ponzi scheme that paid earlier investors with money obtained from later investors.6 The DOJ also alleges that the non-US defendants laundered investors’ funds through a foreign cryptocurrency exchange. The DOJ touted its use of blockchain analytics to assist the investigation.7
- Securities Fraud: In United States v. Stollery, the DOJ alleges that a US national committed securities fraud through an initial coin offering (ICO) for a cryptocurrency investment platform.8 Among other things, the defendant is alleged to have made misrepresentations concerning the platform’s purported customer base, including several well-known American companies and financial institutions such as the Federal Reserve.9 To carry out the scheme, the defendant allegedly created a new cryptocurrency token, BAR, which he claimed would allow “holders . . . [to] share in [the platform’s] future earnings and in appreciation in the value of the BAR digital assets.”10 The DOJ alleges that the defendant “obtained approximately $21 million in the form of various digital assets, such as Ether and Bitcoin, and cash from dozens of investors located in at least 18 states, including California, and abroad, who purchased BAR.”11
- Commodities Fraud and Wire Fraud: In United States v. David Saffron, the DOJ charged a US national with conspiracy to commit commodities fraud, wire fraud, and related charges.12 The defendant and his co-conspirators are alleged to have obtained at least approximately $15 million in investor funds by fraudulently promoting various cryptocurrency trading programs, including a program to purportedly trade options contracts on various cryptocurrencies and fiat currencies through an unregistered commodity pool.13 The defendant and his co-conspirators also claimed to use an artificial intelligence (AI) trading bot, which they represented could execute 17,500 transactions per hour on various cryptocurrency exchanges and would regularly generate between 500% to 600% returns.14
The DOJ’s recently announced enforcement actions suggest several key elements to the agency’s enforcement approach.
- Regulation by Enforcement: The DOJ noted that even in light of the “relative novelty of digital currency,” the agency is “dedicate[d] to using every available tool to protect consumers and investors from fraud and manipulation.”15 These latest enforcement actions reflect the agency’s growing efforts, in cooperation with the Securities and Exchange Commission, Commodity Futures Trading Commission, and other federal agencies, to control misconduct in the digital asset space, notwithstanding the absence of specific legislation and regulatory guidance on these issues.
- Public-Private Partnerships: The actions also reflect the role that the private sector can play in the enforcement of cryptocurrency-related fraud. As discussed above, because of the “novelty” of digital assets as an emerging technology, bad actors can to seek to rely on the reputation of prominent companies and financial intuitions to provide their fraudulent schemes with an “appearance of legitimacy.”16 Here, the DOJ stressed that these actions “exemplif[y] the importance of public-private partnerships” and the agency’s “strong relationships with industry partners,” which yielded “information leading to [the] investigation and ultimate indictment[s].”17
- Cross-Border Enforcement: The actions are notable in their international reach, with two of the actions involving transnational schemes and targeting defendants located outside of the United States. This may reflect the DOJ’s broader recognition that “criminal schemes involving digital assets” are often “transnational [in] nature.”18 Accordingly, the DOJ has emphasized that “[c]ross-border collaboration is critical” to an effective framework for detecting, investigating, and prosecuting criminal activity involving digital assets.19
1 Press Release, U.S. Dep’t of Justice, Justice Department Announces Enforcement Action Charging Six Individuals with Cryptocurrency Fraud Offenses in Cases Involving Over $100 Million in Intended Losses (June 30, 2022), https://www.justice.gov/opa/pr/justice-department-announces-enforcement-action-charging-six-individuals-cryptocurrency-fraud.
2 Indictment ¶ 1, United States v. Le Ahn Tuan, No. 2:22-cr-273-JLS (C.D. Cal), https://www.justice.gov/criminal-vns/case/file/1516756/download.
8 Indictment ¶¶ 1, 9-10, United States v. Stollery, No. 2:22-cr-207-JLS (C.D. Cal), https://www.justice.gov/criminal-vns/case/file/1516766/download.
12 See generally Indictment, United States v. Saffron, No. 2:22-cr-276-DSF (C.D. Cal), https://www.justice.gov/criminal-vns/case/file/1516761/download.
18 Report at 9, U.S. Dep’t of Justice, How To Strengthen International Law Enforcement Cooperation For Detecting, Investigating, And Prosecuting Criminal Activity Related To Digital Assets, (June 6, 2022), https://www.justice.gov/ag/page/file/1510931/download.