To combat crypto crime in the United States, industry participants often turn to securities regulation and the Securities and Exchange Commission (SEC). But when it comes to cracking down on bad actors, the Department of Justice’s emerging playbook seems to have a far greater success rate.
Wire fraud, hailed as the “most powerful law in crypto” by Reuters, proves effective as charges aren’t contingent on the securities classification of crypto assets. The SEC can handle civil charges and dish out fines, but it doesn’t have the power to bring criminal charges against individuals — but the state attorney generals and the DoJ can.
The DoJ has already used wire fraud to land dozens of crypto’s bad actors in prison.
- Wire fraud is the most common criminal charge against crypto promoters.
- Here, ‘wire’ relates to interstate wire communications, not bank wires.
- Wire fraudsters use telecommunications or the internet to defraud victims out of money.
With so much media attention on securities regulation, many crypto industry participants think the SEC is responsible for almost every prosecution against the industry. In fact, other government agencies such as the IRS are more prolific enforcers. Moreover, private lawsuits by civilian plaintiffs dwarf the number of legal actions by all regulators combined.
Wire fraud and the DoJ’s new crypto enforcement playbook
The DoJ has been actively bolstering its capabilities to combat fraud within the digital asset industry. Recent criminal convictions suggest an emerging playbook for the DoJ to more effectively charge crypto crimes.
Two notable cases include the guilty plea of former Coinbase product manager Ishan Wahi for transmitting insider information and the guilty verdict against ex-OpenSea manager Nathaniel Chastain, who allegedly shared insider knowledge over interstate wires.
Intriguingly, instead of pursuing insider trading charges, the DoJ opted for wire fraud and money laundering. This approach allows the DoJ to defer questions regarding the classification of digital assets as securities to the SEC — a matter that the SEC seems quite happy to take off its hands.
Its wire fraud playbook provides the DoJ with legal precedents that it can use to pursue bigger cases in the future. Its convictions build on experience with enforcing digital asset fraud, such as the case against John DeMarr, who had a role in promoting the fraudulent projects Bitcoiin2gen and Start Options. The DoJ also successfully charged Karl Greenwood for wire fraud involving OneCoin.
Ultimately, the DoJ’s goal is to convince juries of defendants’ guilt, regardless of whether the assets in question are considered securities.