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The Crypto Legal Landscape: Executive Order & New Actions

The crypto landscape continues to evolve rapidly, and regulators are adjusting to keep up with the pace of change. On March 9, President Biden issued a much-anticipated Executive Order which outlined his administration’s stance on cryptocurrency. Let’s take a look at the Biden Administration’s crypto executive order and the implications on the overall market, as well as recent enforcement actions.

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The Rundown: Biden Administration & Crypto Laws

Here are the key points to Biden’s crypto executive order:

  • Aiming to protect consumers and investors: Encouraging regulators to monitor digital assets to guard against systemic financial risks.
  • Offering stability in finances: We should encourage the Financial Stability Oversight Council (FSOC) to identify and prevent economic risks caused by the influx of cryptocurrencies.
  • We can diminish the significance of illicit finance by directing an all-out focus from across all relevant U.S. Government agencies.
  • Providing U.S. leadership in the global financial system by having the Department of Commerce collaborate with all relevant government entities to determine the role of digital assets.
  • Supporting financial inclusion is critical by creating financial services which are safe, affordable, and accessible.
  • That is to say, for stimulating responsible innovation, the US Government shall mandate the active study and provision of technical support for the responsible development, design, and implementation of digital asset systems.

Biden Crypto Executive Order: Who’s In Charge?

An Executive Order by the President has tasked the Treasury Department with creating policies and conducting a study. The department will partner with the Interagency and review the potential financial stability risks of crypto, evaluating whether or not proper precautions are in place. This Executive Order requires federal departments to work towards developing guidelines for all future digital development.

This executive order emphasizes private-sector cooperation in the realm of digital currency innovation and recognition of the important role that industry experts have in assisting the U.S. Treasury Department with crafting currency policies. Companies operating in the crypto space will have to closely watch what these agencies (such as FinCEN, SEC, CFPB, and federal bank regulators) do in the wake of the Executive Order. What’s to come will likely shape their direction for the foreseeable future.

Biden Executive Order Spurs Crypto Legal Enforcement Actions 1H 2022

The U.S. Commodity Futures Trading Commission charged four individuals with operating a bitcoin Ponzi scheme. On the grounds that bitcoin is a commodity subject to the commission’s enforcement jurisdiction, the defendants fraudulently solicited more than $21 million in bitcoin by promising potential investors that professionals traders would manage their bitcoin portfolios. In contrast, the defendants are accused of misappropriating some customers’ bitcoin, or using it to pay those customers with previous registration for Bitcoin-profits. In total, they were charged with a $44 million bitcoin Ponzi and misappropriation schemes.

SEC Charges Two Individuals With Fraud.

Also on March 8, the SEC charged two people with fraud against unregistered securities they marketed involving a digital token created by them. The defendants allegedly sold the token to investors on crypto trading platforms and falsely claimed it was backed by a $250 million crypto mining operation producing $5.4 million to $8 million per month in mining revenues. Defendants allegedly fabricated a website that displayed a fake digital wallet, containing more than $190 million in tokens, although their wallet actually only had around $500,000 in digital assets.

We’ve also seen an uptick in SIM swap attacks and fraud — in which those affected have tried to sue mobile service providers.

DOJ Charges Two Individuals With Conspiracy to Commit Wire Fraud

On March 24, the Department of Justice charged two individuals with conspiracy to commit wire fraud and conspiracy to commit money laundering in connection with a million-dollar NFT fraud. The defendants promised purchasers of their NFTs would be eligible for holder rewards, including giveaways, early access to a metaverse game, and exclusive mint passes for upcoming seasons.

The defendants did not give the supposed benefits to NFT purchasers advertised, instead moving the money that came from the scheme to wallets under their control. According to the DOJ, NFT scams have become popular among criminal actors. As its name suggests, a rug pull is when someone promotes the development of an NFT (non-fungible token) by promising to provide it with utility but abruptly abandons the project and keeps the investment funds for themselves.

State Regulators Orders Virtual Casino To Cease Selling NFTs

In the first-of-its-kind cease-and-desist orders issued against a group, Texas and Alabama regulators argued that the offer and sale of NFTs to fund the development of virtual casinos is that of unregistered securities. They allege that the NFTs entitle owners to various benefits, including a pro-rata share of profits generated by the internet and metaverse casinos. Because of these facts and others, the regulators concluded that this group sold unregistered securities.

Bitcoin Kiosk Operator Charged With Tax & Licensing Crimes.

The kiosk operator who converted more than $5.6 million of customers’ cash into bitcoin has been charged with tax fraud and operating unlicensed ATMs. and operating unlicensed ATMs. These Bitcoin ATMs attracted individuals with criminal records related to drug sales and credit card theft. The bitcoin ATM operator did not have the required state or federal licensure to conduct business. Moreover, in the span of a single year, over $5.6 million was deposited into the bitcoin ATMs. Yet the owner claimed only $3,000 in income on his 2017 tax returns and a loss of $140,000 on his 2018 tax returns.

What’s Next For The Crypto Legal Landscape?

It is crucial for market participants to make sure they have the proper state and federal licenses and registrations to sell crypto and non-fungible token related products. With crypto and NFT-related enforcement matters going at a fast pace, it is important to stay up to date with the status of regulatory officials.

The increase in digital assets provides opportunities for America to establish global financial and technological leadership, but also carries serious consequences for consumer protection, financial stability, national security, and climate risk.

In order to support technological innovation while mitigating risks, America must maintain technological leadership. In addition, the initiative will need to make a leading contribution to international engagement and global governance of digital assets with respect to democratic values and to the global competitiveness of the United States.

Legal Favor
Legal Favor

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