Articles Posted in Cryptocurrency

Joseph Kim, a young Chicago trader just pleaded guilty to stealing $3 million worth of cryptocurrency from the firm that employed him and investors. The case, which involves charges of wire fraud, is the first criminal prosecution for cryptocurrency related violations in the city.

The 23-year-old trader who appeared before Judge Andrea Wood, could potentially be sent to prison for as long as 20 years. He will be sentenced in October, and he may also be ordered to pay back over a million dollars in restitution.

According to the prosecutors´ allegations, the defendant took $3 million from his firm and over half a million from investors. His goal was to make up for losses he incurred due to disadvantageous trades made on his personal account. While he attempted to return some of the Litecoin and Bitcoin he stole from his firm, Consolidated Trading, he still owed over $1.1 million when the misconduct came to light.

If you exchanged an official email with any SEC employee recently, you have seen the banner for Howeycoins Travel Network. And if you like to get in on a profitable deal, you probably thought, “well, if the SEC is endorsing them, these guys must be legit.” Perhaps you clicked on the banner to see what it was all about. If so, you must have been surprised at what you found.

Pre-initial coin offering deals usually promise spectacular returns, and HoweyCoins are not the exception. The attractive website for the ICO shows alluring scenes from luxury travel destinations. As you scroll down, you will quickly find that HoweyCoins will yield returns of at least 1 percent daily.

If you are not sold yet, the site quickly boasts, “The average registered coin return over a two month period in 2017 was an amazing 72%.”

FINRA has announced it will increase its scrutiny of the cryptocurrency market. As several regulatory bodies endeavor to establish their jurisdiction over the crypto space, FINRA will now boost its oversight of registered firms’ participation in its burgeoning market.

In a new regulatory notice, the self-regulatory organization asked its 3,700 member firms to notify it if they trade in cryptocurrency, accept cryptocurrency from clients, manage crypto funds, participate in the sale of digital tokens, or even offer advice relating to cryptocurrency.

FINRA will also monitor virtual currency mining and any other related use of blockchain technology.

A few days before issuing the recent advisory for the cryptocurrency market, the Commodity Futures Trading Commission told the judge in the case against My Big Coin Pay Inc. that cryptocurrencies are commodities, and are therefore within CFTC jurisdiction.

The federal judge in Massachusetts is hearing the case against My Big Coin Pay Inc., a cryptocurrency company that allegedly defrauded dozens of investors out of at least $6 million.

Unsealed earlier this year, a CFTC lawsuit against the issuer of the virtual currency known as My Big Coin Pay first shed light on the company´s questionable practices.

On May 21st, the Commodity Futures Trading Commission issued a new document offering valuable guidance for registered market participants.

The head of the CFTC’s Division of Market Oversight, Amir Zaidi said in an accompanying press release,

“The CFTC staff is committed to providing regulatory clarity as much as possible. As the virtual currency market continues to evolve, CFTC staff will seek to provide additional guidance to help market participants keep pace with innovation while complying with CFTC regulations.”

The over 80 subpoenas recently issued to companies in the cryptocurrency sector have provided a logical corollary to the agency’s many warnings about ICOs potential violations of security laws.

The time for warnings is over. Now, the SEC’s intentions have evolved into enforcement actions, forever changing the scenario for new cryptocurrency initiatives.

In late 2017, Bitcoin’s spectacular rise in value lured both would-be cryptocurrency developers and new investors with the promise of returns higher than 2,000 percent. Although the digital currency’s value eventually stabilized, these price fluctuations and the surge in ICO initiatives raised alarm among regulators, who pointed to issues of valuation, liquidity, and arbitrage.

Recently, British comedian John Oliver dedicated his weekly show to cryptocurrency. Drawing from a seemingly endless supply of ICO Ponzi schemes, pump-and-dumps, and grandiose cryptocurrency speakers, the program emphasized the hitherto lax regulations that have enabled fraudulent schemes to flourish.

Oliver coined the hashtag #CraefulGang, a play on the popular caption #HODLGang, well known to cryptocurrency enthusiasts. Where a drunken BitcoinTalk poster had advised investors to “HODL” (a typo for hold), Oliver warned them to be “Craeful” and do their own research before giving their savings to obscure ICO companies making wild claims.

Before the SEC zeroed in on the cryptocurrency investment space, announcing that it viewed ICOs as securities and issuing subpoenas left and right, the market was more akin to the Wild West than to Wall Street.

Celebrity endorsements add an element of trust for investors who are just entering the ICO market. But the strategy did not turn out well for Centra Tech, as a third arrest has just been made in connection with the SEC’s allegations that the company defrauded investors out of over $25 million.

Earlier this year, I reported on the charges brought against Sohrab Sharma and Robert Farkas, and the public exposure of the alleged fraud.

Sharma, Farkas, and now Raymond Trapani have been charged with falsely advertising their ICO as having links with Visa, and Mastercard, which they claimed were backing their cryptocurrency-funded debit card, “Centra Card.”

The SEC is effectively expanding its jurisdiction into the cryptocurrency and ICO market. Dozens of companies, possibly hundreds, are receiving SEC subpoenas, which I advise them to take very seriously.

High profile companies, including giants like TechCrunch’s cryptofund, are currently dealing with these subpoenas. One of the problems is that nobody knows exactly what is going on, and the market is eager for the SEC to clarify the rules.

Do securities laws apply to cryptocurrency? The SEC says they do, but it is yet to issue a detailed guide for compliance. That is why securities lawyers like myself are playing an increasingly important role in the digital currency space right now.

The SEC has repeatedly warned cryptocurrency investors about the market’s vulnerability to large-scale fraud. Likewise, the agency has made it clear that cryptocurrency offerings that function as securities will be treated as such, and thus subjected to scrutiny.

Since SEC officials began making emphatic statements about its jurisdiction over the cryptocurrency space, many companies have been sued in connection with their ICO dealings.

According to estimates, the SEC is looking into the affairs of at least 80 crypticompanies, in search of a variety of violations.

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