The recent news that the U.S. Department of Justice (DOJ) is disbanding its crypto unit and shifting focus from prosecuting platforms to targeting individuals who harm crypto investors or use digital assets for illegal activities may be seen as a sign of a significant sea change in the Government’s “regulation by prosecution” approach to financial crimes. Very often, criminal prosecution in the securities, health care, and cryptocurrency arenas is focused on violations of complex and often opaque regulations, which is why such prosecutions very often emerge alongside parallel civil investigations. Criminal defendants and their attorneys have decried the Government’s blunt force approach to criminalizing what are essentially regulatory violations using the incredibly broad federal statutes for mail fraud (18 U.S.C. 1341); wire fraud,18 U.S.C. 1343); healthcare fraud (18 U.S.C. 1347); securities and commodities fraud (18 U.S.C. 1348), and the Computer Fraud and Abuse Act (18 U.S.C. 1040).

Likely, this move by the DOJ does not signal a looming retreat from such prosecutions, but instead represents a more targeted effort to promote innovation in the ever-developing digital currency platforms in alignment with President Trump’s Executive Order on digital assets. The end result is that the DOJ will no longer pursue actions that impose regulatory frameworks on digital platforms, leaving this instead to President Trump’s regulators. The DOJ will prioritize cases involving misappropriation of funds, scams, and hacks with the stated goal of protecting investors and building market confidence and will continue to target crypto use by criminal organizations.

Under this new policy, prosecutors are advised against charging regulatory violations unless there is evidence of willful misconduct (criminal intent), which really seems to be restating what should have been policy all along. Importantly, the DOJ will avoid litigating whether a digital asset is a security or commodity (a retreat from the Biden era’s position), preferring charges like wire fraud, but may consider bitcoin and ether as commodities. The U.S. Commodity Futures Trading Commission (CFTC) is adopting a similar approach, as directed by Acting Chair Caroline Pham deprioritizing registration violation actions unless there is evidence of willful non-compliance.

It is important if you are being investigated or charged with fraud to hire an attorney who has vast experience with white-collar federal criminal investigations and prosecutions. Often, early intervention in a case may prevent charges from ever being filed. Given the complexity of the federal regulations applicable to many industries, from health care to securities to banking, and the incredibly broad federal statutes that can be used to transform an investigation into a criminal case, you need to make sure that the attorney you hire has a practice that is primarily federal, with an in-depth understanding of the criminal statutes, the sentencing guidelines (driven by loss amounts and enhancements that can result in draconian sentences); federal forfeiture statutes, and restitution.

At Stahl Gasiorowski, partners Laura K. Gasiorowski and Robert Stahl have over 65 combined years of experience representing federal criminal defendants in the District of New Jersey, the Southern and Eastern Districts of New York, and in other federal courts across the United States. We have represented individuals and start-up platforms involving unregulated money transfer businesses, rug pulls, NFTs, material misrepresentations, and the use of paid celebrities and sport figures in marketing.

Stahl Gasiorowski Criminal Defense Attorneys have represented hundreds of individuals and companies subpoenaed by federal and state authorities. We have the experience and skills to effectively navigate our clients through these complex issues and investigations to achieve the best possible outcome. If you are looking for a crypto fraud lawyer,wire fraud lawyer, securities fraud lawyer or healthcare fraud lawyer, contact Mr. Stahl or Ms. Gasiorowski, call 908.301.9001 for the NJ office or 212.755.3300 for the NYC office, or email Mr. Stahl at rgs@sgdefenselaw.com or Ms. Gasiowski at lkg@sgdefenselaw.com.

Cryptocurrency has been at the forefront of debate between various law enforcement and regulatory efforts to impose stricter controls and regulations and those who view it as a form of currency that should not be closely regulated. Within the past two weeks, both the SEC and the Treasury Department have defended their enforcement actions and requested additional tools to combat cryptocurrency fraud and misuse.

The SEC again defended its authority to regulate crypto, despite critics claiming that cryptocurrency is a commodity not an SEC regulated security. At the SEC Speaks in 2024 event, Enforcement Chief Gurbir Grewal maintained that the SEC’s enforcement actions have been consistent and principled, tied to federal securities laws and court precedents. The SEC’s position is that if a crypto asset was offered and sold as an investment contract, it’s a security under the Howey test. The SEC rejects the argument that crypto products are currencies and beyond the reach of SEC regulation. To date, various courts have upheld the SEC’s position.

The Treasury Department has once again called on Congress for additional tools to combat cryptocurrency use by terrorist organizations who circumvent restrictions and embargoes to gain access to funds. One of the recent requests was to introduce secondary sanctions that would allow the Treasury Department to target digital asset providers, even extraterritorially. Included in the various requests was extra funding for the Office of Foreign Assets Control.

A number of Senators support strong anti-money laundering restrictions on cryptocurrency. Many in the crypto sector do not comply with know your customer, documentation of account holders, source of assets and other anti-money laundering measures. Other Senators want only a “light regulatory system” that imposes restrictions on centralized retail crypto exchanges to bring crypto out of the “Wild West”.

Clearly, cryptocurrencies will continue to be subject to increasing regulations and enforcement as Congress and regulatory agencies understand the nuances and complexities of ever developing and expanding platforms.

Stahl Gasiorowski Criminal Defense Attorneys are experienced in defending individuals charged with various crypto related offenses, including wire fraud, money laundering, unregistered currency exchange and securities fraud. To contact us call 908.301.9001 for the NJ office and 212.755.3300 for the NYC office, or email Mr. Stahl at rgs@sgdefenselaw.com or Laura K. Gasiorowski at lkg@sgdefenselaw.com

Federal regulatory and law enforcement agencies have been redirecting and expanding their resources to investigate and combat frauds involving crypto and other digital platforms. The SEC recently requested $200M from Congress to hire additional 170 new employees, many to focus on crypto-related cases. These new hires will include lawyers in the Division of Enforcement’s Crypto and Cyber Unit (CACU) that focuses on violations of federal securities laws. This request is in addition to the 20 positions added in 2022.

With the recent collapse of FTX, and fraudulent conduct or hacked accounts involving Ethereum, Celsius, Nomad, Wormhole and BlockFi, to name a few, there is good reason for increased budgets, new hires and advanced technology to investigate, uncover and prosecute crypto-related frauds.

Until recently, crypto platforms, initial offerings and digital start-ups were less regulated than traditional financial offerings and investments. With the advent of so many major collapses and frauds, however, law enforcement and Congress have focused their attentions on regulating these platforms to help prevent pump and dump schemes, unregistered money transfers, know your customer requirements, and money laundering.

A major example of this increased scrutiny is the SEC’s recent Wells Notice to Coinbase, a well-established company that was publicly listed in 2021 and has repeatedly attempted to register its spot platform. The Notice listed potential claims Coinbase could face including operating as an unregistered exchange, listing unregistered securities in the form of digital assets, and offering services such as staking and wallet activity that could violate securities law. Coinbase is pushing back hard on these potential claims arguing that the SEC has not specified which digital assets potentially qualify as securities, which aspects of its stalking service are of concern and whether Coinbase’s recent updates corrected any of these potential issues. Moreover, Coinbase has argued that the SEC has dramatically changed its position from May 2021, when SEC Chair Gary Gensler told Congress that there was no framework for crypto at the SEC or at the U.S. Commodity Futures Trading Commission, and that he looked forward to working with Congress to develop one. By the end of 2022, however, Gensler said that he believed the SEC had enough authority to regulate the space. It is Coinbase’s position that these two statements are “diametrically opposed.”

The increase in regulatory and enforcement actions here in the United States, and more recently in countries traditionally sought for their lax monetary regulations, has caught many “crypto entrepreneurs” unaware. Many in this burgeoning field are young who get their “advice” from chat groups, Instagram and other platforms where influencers flaunt their apparent wealth and possessions all allegedly obtained through their skills at buying, trading and investing in crypto and NFTs. Many are completely unaware, while other intentionally ignore, the many statutes, regulations and rules that regulate digital assets and platforms.

Stahl Gasiorowski Criminal Defense Attorneys has represented a number of individuals investigated and charged with crypto-related frauds and failures to register. To contact Mr. Stahl, call 908.301.9001 for the NJ office and 212.755.3300 for the NYC office, or email Mr. Stahl at rgs@sgdefenselaw.com.

As digital currencies have become more popular and commonplace, the government has stepped up its efforts to make sure that transactions and offerings do not run afoul of established regulations.

On October 11, 2019, the SEC, CRTC and FinCEN issued a joint statement urging those dealing in digital currencies to comply with obligations under the Anti-Money Laundering (AML) and Currency Financial Transactions (CFT) regulations under the Bank Secrecy Act (BSA) – regardless of what the digital assets are called.

This joint statement was meant as a warning. All cryptocurrency trading exchanges must adhere to AML, CFT and know-your-customer (KYC) practices that apply to most other financial transactions. These include:

• Accurate and complete recording of transactions;
• Knowing who the customers are;
• Independent testing of BSA and AML compliance;
• Stringent personnel training; and
• Prompt reporting of suspicious activity to law enforcement.

These regulations apply to large trading platforms and Initial Coin Offerings (ICO), as well as individuals who trade for their own digital wallets as well as for the general public. These part-time traders are especially vulnerable because they usually do not recognize that they must comply with these regulations.

One must also be aware of federal laws governing “registered money transferor” status – when an individual or company regularly trades in digital currency. In addition to the aforementioned federal regulations, there are a host of state regulations and laws regarding registration and licensing, reporting, and bonding requirements. Digital currency transactions have been scrutinized by the IRS and state taxing authorities since at least 2014, as they are considered taxable events just like any other property transaction. When a person trades in digital currency and realizes a profit, that profit is subject to tax like any other gain.

The IRS sent over 10,000 letters to known digital currency holders over the summer, warning them that in certain cases taxpayers could be subject to criminal prosecution if they do not properly report their virtual currency transactions.

In sum, the IRS is moving to enforce various tax provisions for digital currencies, both administratively and criminally. Those that transact in digital currencies must be aware of and comply with a myriad of federal and state regulations or risk civil and potentially criminal penalties.

Stahl Gasiorowski Criminal Defense Lawyers aggressively defend individuals charged with complex federal and state crimes. Founder Robert G. Stahl is recognized as one of the top criminal defense attorneys in the NY/NJ area for his skills, knowledge and success. To contact the firm, call 908.301.9001 for the NJ office and 212.755.3300 for the NYC office, or email Mr. Stahl at rgs@sgdefenselaw.com.

In their simplest form, Bitcoin and other virtual currencies are digital representations of value that can be traded through an exchange and stored in digital wallets secured by 26-35 character long case sensitive account numbers that require a private key, similar to a password or pin to access. Virtual currency is not legal tender issued or guaranteed by any government. Rather, its value is determined by consensus within a community of users. Since these transactions are done on the internet and through exchanges using cash, wire transfers, or credit cards to a host of web-based businesses, the purchasers’ identities and source of funds are more difficult to uncover.

Starting in 2013, the Department of Justice (DOJ) announced its policy position to prosecute individuals for failing to register their Bitcoin-related businesses. The DOJ, and to date courts have agreed, that Bitcoin and other virtual currencies fall within the parameters of 18 U.S.C. § 1960, and money laundering statutes 18 U.S.C. § 1956 and 1957. § 1960 states in relevant part, “whoever knowingly conducts, controls, manages, supervises, direct, or owns all or part of an unlicensed money transaction business, shall be fined in accordance with this title or imprisoned not more than 5 years, or both.” Thus, using this language, Bitcoin business operators are now being prosecuted by the DOJ as unlicensed money transmitting businesses.

To establish criminal liability, the government must prove that a person or business (a) transferred on behalf of the public (b) funds (c) in violation of State or Federal licensing and registration requirements, or with knowledge that the funds were derived from a criminal offense. The standard merely requires the government to show that the person or entity failed to properly register with their state, usually the Division of Banking and Insurance, and/or with FinCEN (Financial Crimes Enforcement Network). 31 U.S.C. § 5330. The reason for the registration and reporting requirements are simple – without these, the government has no way to regulate and uncover alleged illegal transactions through the use of virtual currencies.

Increasingly, the government is bringing charges against relatively small family-run businesses that trade Bitcoin for their own investment, as well as for the public. In these scenarios, the person sets up a website offering the purchase of Bitcoin for a modest 4-5% commission. The individual may register their company as an LLC or corporation with their home state and properly declare the income on their tax returns. However, if they fail to register with their state banking commission and with FinCEN, they are subject to civil and criminal penalties. They may also be subject to liability for failing to comply with monetary reporting regulations, such as filing Currency Transaction Reports (CTRs) and IRS Form 8300 for currency transactions of $10,000 or more.

Lastly, operators of these businesses face exposure under the other prong of §1960, knowledge that the funds were derived from a criminal offense. To that end, knowing one’s customer, similar to bank requirements, comes into play. Knowing that a customer – or an undercover agent posing as a legitimate customer – has acquired funds through illicit means will subject an individual to criminal liability. The government, for example, has been using undercover investigations to ferret out Bitcoin businesses. An undercover may tell the person that the monies used to purchase the Bitcoin come from the sales of illegal items, such as internet sales of prescription drugs, stolen goods, or the like. Or the agent may simply have several transactions that when totaled exceed $10,000 and the proper reporting forms are not submitted. Each of these transgressions run afoul of the law.

While virtual currency is becoming more widely known and accepted – and certainly has legitimate uses – it is still developing and increasingly regulated. There are a number of ways for a person involved with a Bitcoin business to come under government scrutiny; the registration and intricate regulatory schemes involved in transfers of money and Bitcoin require sophisticated legal advice and caution.

Stahl Gasiorowski Criminal Defense Lawyers aggressively defend individuals charged with complex federal and state crimes. Founder Robert G. Stahl is recognized as one of the top criminal defense attorneys in the NY/NJ area for his skills, knowledge and success. To contact the firm, call 908.301.9001 for the NJ office and 212.755.3300 for the NYC office, or email Mr. Stahl at rgs@sgdefenselaw.com.