Cryptocurrencies have been touted as revolutionary. Such assertions are debatable but developments such as Morgan Stanley planning to trade Bitcoin for its clients show that cryptocurrencies are likely here to stay.
What happens when investors are the victims of fraud involving a cryptocurrency? A recent U.S. District Court decision has shed a great deal of light on the issue.
As reported in the New York Law Journal, US. District Judge Raymond Dearie said that fraud allegations involving cryptocurrency are essentially “run-of-the-mill schemes” once they are “stripped of the 21st-century jargon”. (Source: “US Attorney Gets Green Light to Use Securities Laws in Cryptocurrency Fraud Case“, New York Law Journal, September 11, 2018)
The judge dismissed a challenge to federal prosecutors’ use of long-standing securities laws to bring charges involving the cryptocurrency market (in a previous post, we pointed out that the openness of cryptocurrency markets could attract illegal activities such as money laundering). This ruling out of Brooklyn would appear to settle the question of how fraud involving cryptocurrency will be handled in the United States.
Lack of central control or government sponsorship continues to be an attractive or unsettling element of investing in cryptocurrency. However, with this ruling on the books, no one will be able to claim ignorance as a defense if they find themselves on the wrong end of a SEC investigation or securities charges. Anyone facing fraud charges needs a strong legal defense from a proven attorney.