On June 30, DOJ charged six people in four separate cases for a fraudulent NFT trading scheme.
The first case alleges that an individual committed wire fraud and participated in a conspiracy to commit international money laundering in connection with a high-profile NFT. The accused individual allegedly engaged in “carpet pulling” by ending the NFT project, deleting his website and keeping all investors’ money. The DOJ also alleges that the individual laundered investor funds through “chain-hopping,” a form of money laundering in which one type of coin is converted into another type and the funds are moved across multiple blockchains and crypto mixers totaling $2.6 million from investors. .
In another case, three people were charged with conspiracy to commit wire fraud and conspiracy to commit securities fraud in connection with a global cryptocurrency-based Ponzi scheme that generated approximately $100 million from investors. Two people were also charged with conspiracy to commit international money laundering. The DOJ alleges that individuals engaged in unregistered securities offerings, making numerous misrepresentations regarding the purported proprietary trading bot and falsely guaranteeing returns to investors and potential investors. The DOJ alleges that the individuals laundered investor funds through a foreign-based cryptocurrency exchange and operated a Ponzi scheme by paying early investors with money obtained from later investors.
The third case involved the CEO of a cryptocurrency investment platform, who was charged with one count of securities fraud for his role in a cryptocurrency fraud scheme involving an initial coin offering that raised approximately $21 million from investors in the U.S. and abroad. The CEO allegedly falsified a white paper about the coin, posted fake testimonials on a website and fabricated alleged business relationships with the Federal Reserve Board and dozens of prominent companies.
The fourth case involved the owner of a cryptocurrency investment platform, which allegedly asked investors to participate in an unregistered commodity fund, which is a fund that combines investors’ contributions to trade in the futures and commodity markets. The owner allegedly represented to investors that he traded investors’ funds to earn a profit using a trading bot that could make over 17,000 transactions per hour on various cryptocurrency exchanges and that his trading bot would generate between 500% and 600% return on the amount invested. The DOJ alleges that the owner fraudulently withdrew approximately $12 million from investors.
Putting it into practice: Crypto and NFT enforcement issues are likely to continue at a faster pace. It remains critical for market participants to ensure that they have the appropriate state and federal licenses and registrations required to offer their products. These enforcement actions should be viewed in light of the recent federal push to regulate blockchain and related technologies (we’ve discussed this push in previous blog posts here).
Copyright © 2022, Sheppard Mullin Richter & Hampton LLP.National Law Review, Volume XII, Number 202