Be Careful – Feds Targeting Cryptocurrency Fraud

The federal government is undertaking a review of new kinds of financial fraud.


Cryptocurrency is a general term for digital, cloud-based currency which fluctuates in value. Some entrepreneurs are using these digital currencies to commit fraud, which has drawn the attention of the Securities and Exchange Commission (SEC) which is now targeting schemes linked to the use of cryptocurrency.


First Ever Charges Involving Falsely-Backed ICOs


In September 2017, the SEC began prosecution of two Initial Coin Offerings, or ICOs, that were allegedly based on fraudulent securities. This is the first time the SEC has filed charges in a case involving falsely-backed ICOs.


Instead of traditional methods of buying and selling company shares, ICOs use blockchain cloud-based technology to sell digital shares. A legal ICO works by transmitting coded links between the shares and cloud-based applications that use blockchain. ICOs have become immensely popular due to their unregulated nature and ease of global use.


This developing technology holds promise for monitoring supply chains between a few entities and other operations. Yet problems have developed when digital shares become linked to marketplace assets. In the following case, the marketplace assets allegedly never existed.


Maksim Zaslavskiy, 38, of the Brooklyn area, allegedly headed up two ICOs dubbed REcoin and DRC (Diamond Reserve Club). RECoin was marketed to be backed by real estate, and DRC was purported to be backed by diamonds. Both ventures were advertised as legitimate companies with a significant client base, full staffing, and legal teams.


However, the SEC charges that the digital shares didn’t exist, and that both ICOs were fraudulent schemes with no legitimate investments.


According to court reports, Zaslavskiy raised $300,000 through investors, though he claimed to have raised $1.5 million. He raised $100,000 for the diamond-backed tokens, but the investments were allegedly transferred from real estate holdings. Zaslavskiy could face up to five years in prison if convicted.

What the SEC’s Actions Indicate


The SEC’s approach seems to indicate support for positive uses for of ICOs, but by cracking down, the agency is sending a warning to those who use ICOs for fraudulent schemes.

Other cryptocurrency cases have recently come to the forefront of SEC investigations.


In June, the SEC filed charges against a British citizen living in the U.S. who allegedly created a bitcoin operation to transfer funds under fraudulent claims. Renwick Haddow did not register a

securities firm, then raised funds through broker-dealer relationships. According to an SEC statement, he made off-shore transfers of over $5 million.


Cryptocurrency Fraud Defense Lawyer

In another case, a Wall Street executive is being sued by four investors for selling fraudulent digital currency. Stuart A. Fraser, vice chairman of Cantor Fitzgerald, had a long-term working relationship with Josh Garza, who was convicted in July 2017 on charges of wire fraud. Garza was the CEO of GAW Miners, a company that sold and traded digital currency.


The four investors purchased investments called Hashlets through Garza’s company. Now they allege that Fraser’s involvement in Garza’s company was part of the fraudulent scheme. Garza could face 20 years in prison and $9 million in penalties for his conviction.


Understanding What Federal Laws Say about Fraud


If you are in the business of using cryptocurrency, it’s wise to learn what the federal laws have to say about fraud offenses. The kinds of fraud involved in cryptocurrency schemes may fall under the following statutes:


  • Frauds and swindles—punishable by up to 20 years in prison
  • Fraud by wire—punishable by up to 20 years in prison
  • Securities and commodities fraud—punishable by up to 25 years in prison
  • Attempt and conspiracy—Fine of $1 million to $5 million, plus 10 to 20 years in prison, depending on the circumstances


Since even a first-time offense can mean years in prison, it’s essential to seek legal counsel as soon as charges are filed or – even better – the moment you learn that you are under investigation.


In the cases above, the SEC seems to be cracking down hard to send a message to would-be schemers. Don’t let them make an example out of you. Refuse to speak to federal investigators without an experienced federal crimes lawyer present.


When you work with an attorney with years of experience in federal fraud cases, you can trust that you will have a solid defense and a strategy to fight trumped-up charges.


Houston Federal Fraud Attorney

Many individuals facing fraud charges have no previous criminal record, so they are sometimes unaware of the penalties surrounding the charges. A knowledgeable attorney can clearly explain the charges and potential avenues for getting charges dropped or sentences reduced.


If you are a target of a federal investigation, you need a skilled attorney who will use their expertise to defend you. Call today for a free case review.