A basic truism — you do not want to become the subject of a Justice Department investigation. The wheels of justice — prosecutors and law enforcement — can cause real harm to organizations and individuals that violate the law.
DOJ is aligning resources to investigate and prosecute cryptocurrency criminal activity. This should not come as a surprise to anyone.
The Justice Department announced with much fanfare the creation of DOJ’s National Cryptocurrency Enforcement Team (“NCET”) that was organized to target cryptocurrency exchanges, crypto infrastructure and others that facilitated the movement and disguise of illicit financial schemes. The NCET consists of prosecutors from various DOJ components, including the money Laundering and Asset recovery Section, the Computer Crime and Intellectual Property Section, and other prosecutors detailed from individual U.S. Attorneys’ Offices.
The NCET is focused on crypto-based fraud and money laundering schemes.
Earlier this summer, DOJ brought criminal charges against six defendants in four separate cases for crypto-currency fraud. In one case, DOJ prosecuted the largest non-fungible token (“NFT”) scheme. The other criminal cases involved a fraudulent investment fund that alleged exchanges, a global Ponzi scheme involving the sale of unregistered crypto securities, and a fraudulent initial coin offering.
A quick summary of each case is set out below:
Crypto NFT Scheme: US v. Le Ahn Tuan — a Vietnamese national was charged with one count of conspiracy to commit international money laundering involving the “Baller Ape” NFT. Tuan was involved in the Baller Ape Club, an NFT project that sold NFTs in the form of cartoon figures, often including the figure of an ape. Shortly after the first BFTs were sold, Tuan engaged in a “rug pull,” ending the investment project, deleting its website and stealing the investors’ money. Tuan and his co-conspirators laundered investors’ funds through “chain-hopping,” which involves conversion of coins across multiple blockchains.
Crypto Ponzi and Unregistered Securities: US v. Pires, Goncalves and Nicolas — three defendants were charged in the Southern District of Florida with conspiracy to commit wire fraud and securities fraud stemming from a global crypto-currency Ponzi scheme that generated approximately $100 million from investors. Pires and Goncalves were both founders of EmpiresX, along with Nicholas, the alleged “Head Trader” for Empires X, and fraudulently promoted EmpiresX, a cryptocurrency investment platform and unregistered securities offering by making numerous misrepresentations including false guarantees on returns to investors. Pires and Goncalves laundered investors’ funds through a foreign cryptocurrency exchange and operated a Ponzi scheme by paying earlier investors with money secured from later investors.
Crypto Initial Coin Offering: US v. Michael Allan Stollery — was the CEO and founder of Titanium Blockchain Infrastructure Services (“TBIS”), a cryptocurrency investment platform. Stollery was charged with securities fraud for his role in TBIS’s initial coin offering for $21 million. To lure investors, Stollery falsified TBIS white papers, planted fake testimonials and fabricated supposed business relationships.
Crypto Commodities Scheme: US v. David Saffron –– was the owner of Circle Society, a cryptocurrency investment platform. Saffron used Circle Society to solicit investors to participate in an unregistered commodity pool in order to combine contributions to trade on the futures and commodity markets. Saffron falsely represented to investors that he traded investors’ funds to earn profits using a trading bot, and that the trading bot would generate returns between 500 to 600 percent. To push his scheme, Saffron met with wealthy investors at luxury homes in teh Hollywood Hills and elsewhere, and traveled with a team of security guards to create the false appearance of wealth and success.
The U.S. Attorney’s Office for the Southern District of New York is also focusing on cryptocurrency enforcement matters. Recently, the USAO-SDNY charged three individuals, including one former Coinbase product manager, Ishan Wahi, with the first cryptocurrency insider trading case. The government alleges that Wahi used highly confidential information about which assets Coinbase was planning to list on its exchanges to tip his brothers and a friend who used the information to earn over $1.5 million by trading ahead of the Coinbase public announcement.
In another case, the USAO-SDNY charged an individual, Nathaniel Chastain, a former manager at OpenSea, a leading NFT platform, with using confidential business information about which NFTs would be displayed on the homepage so that he could secretly purchase dozens in advance knowing that the price of the NFT would go up once it was displayed on the homepage.