Home » JURSIDICTION OVER CRYPTOCURRENCY – The U.S. Government’s Fraud Actions Against Samuel Bankman-Fried, FTX, and Alameda Research | SECIL Law

JURSIDICTION OVER CRYPTOCURRENCY – The U.S. Government’s Fraud Actions Against Samuel Bankman-Fried, FTX, and Alameda Research | SECIL Law

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The U.S. Government’s criminal and civil lawsuit against Samuel Bankman-Fried (“SBF”) represents a novel coordination and cooperation between three government agencies, and It reveals the use of different jurisdictional bases and anti-fraud laws. Aftermath of the collapse of his cryptocurrency trading firm. Of course, it remains to be seen whether the Department of Justice (“DOJ”), the U.S. Securities and Exchange Commission (“SEC”), and the U.S. Commodity Futures Trading Commission (“CFTC”) will prove their claims. His actions against the SBF reveal the coordination of his three federal agencies most interested in controlling, if not suppressing, the cryptocurrency phenomenon.

For DOJ, as previously pointed out, sale cryptocurrencies are subject to existing legal prohibitions, especially standard federal criminal provisions.Not related to these laws what you offer and sellbut more important than minimal hurdles to interstate commerce: What You Say in Offers and Sells Mechanisms you sell whatever you sell. DOJ’s SBF indictment uses these well-worn provisions, leading to criminal wire fraud and conspiracy to commit wire fraud, and the indictment contains conspiracy to commit securities and commodity fraud, conspiracy to defraud lenders, as well as counting money laundering and campaigns. financial breach.

Unlike DOJ, SEC jurisdiction depends on: what A public marketplace that depends on what you offer, what you sell, and what you say about your business.of what Must be a “securities” as defined by statutes and judicial decisions. The SEC complaint against SBF alleges that the securities here are standard equity securities (shares) and that SBF defrauded the buyers and holders of shares of FTX Trading Ltd. (“FTX Trading”). increase. CEO who capitalized, built and owned a cryptocurrency trading platform. FTX Trading has filed for bankruptcy in November 2022.Interestingly, the SEC has launched FTX’s own cryptocurrency, a digital token called FTT, launched in 2019, or transaction of cryptocurrencies on the platform. In short, the authorities either chose not to characterize cryptocurrencies as “security,” as they have done in other cases since 2018, or found it unnecessary.

Like the SEC, the CFTC has jurisdiction under: what You Offer or Sell: It must be a contract for the sale of “goods” for future delivery. is considered a product of The CFTC complaint on the matter expressly states that certain cryptocurrencies traded on the FTX trading platform, such as Bitcoin and Ethereum, are indeed “commodities,” although the FTT that was also traded on the platform was It doesn’t say whether it’s a “commodity” or not. Again, this appears to have been unnecessary for the agency’s purposes in this case: By deeming other cryptocurrencies as commodities, the CFTC claims jurisdiction over his FTX Trading and Alameda Research LLC. , traded Through these cryptocurrencies and SBF because he allegedly orchestrated fraudulent activities.

Most interesting, however, is the SEC’s omission of allegations of violations of registration under the Securities Act of 1933. These claims require that the FTT, a cryptocurrency, be characterized as “security” and that FTT be included in the definition. For this purpose of “security,” the SEC has previously used the term “investment contract” to grasp what, as previously discussed, is certainly not a security. Given the various difficulties of “registering” these cryptocurrencies with the SEC’s corporate banking division, they are seldom, if ever, easy to file lawsuits against the producers of cryptocurrencies. These alleged registration violation cases, with accompanying financial penalties (civil money penalties and exploitation), have kept the agency busy for more than his four years. In a number of issues other than fraud, the agency claims its offerings and sales of cryptocurrencies, including Gram, XRP, and LBC, are unregistered offerings and violate Section 5 of the Securities Act.

As well as these other matters, FTX Trading, Ltd. (“FTX Trading”), an SBF company, creates and sells digital tokens (“FTT” cryptocurrencies) that fund FTX Trading and also did not register the token with the SEC during However, the SEC complaint does not contain a notable violation of registration allegation against FTX Trading. Generally, the SEC has no problem adding claims for violations of registration to claims for violations of anti-corruption provisions. Especially since a request for registration may increase the penalties for a responsible defendant.

I don’t see a principled basis for distinguishing the “security” aspect of the FTT from other digital tokens that have ceased to exist as a result of a registration violation lawsuit filed by the SEC. It may seem mysterious that the SEC uses the most symbolic type of security (stocks) in this matter and does not even mention the FTT token as a security.But the mystery is that the FTT token is Assets on the Left Side of FTX Trading’s Balance Sheet-No Claims for assets on the right side of the balance sheet, it is a security. Assets can, of course, include securities (of other issuers), but the SEC didn’t seem to want to highlight the discrepancy in claiming that the FTT digital token is effectively equivalent to treasury stock. In other words, treating the FTT token as an “investment contract” on FTX Trading will only show it as a “Treasury” security and not show its value as an asset.

SEC Chairman Gary Gensler (Formerly CFTC Chairman) Declares Virtually All Cryptocurrencies Other Than Bitcoin And Ether (and Possibly Ether) Are “Securities” Under SEC Jurisdiction Did. But the issue could expose a contradiction in his SEC theory that a company’s digital tokens could be treated as assets on the left side of the balance sheet, just as they are for FTX trading. . The right side of the corporate, or most corporate, balance sheets.

1 look US vs. Bankman-Friedcase number 1:22-cr-00673 (SDNY 13 December 2022), https://www.justice.gov/usao-sdny/press-release/file/1557571/download; SEC vs. Bankman-Friedcase number 1:22-cv-10501 (SDNY 13 December 2022), https://www.sec.gov/licigation/complaints/2022/comp-pr2022-219.pdf; CFTC vs. Bankman-Friedcase number 1:22-cv-10503 (SDNY 13 December 2022), https://www.cftc.gov/media/7986/enfftxtradingcomplaint121322/d

2. for example, Cory Kurchart & Adrian Morse, Dismantling the SEC’s Cryptocurrency Suppression Program: Part 1, in the text accompanied by nn. 18-21, JD Supra (March 24, 2021) (DOJ rules 18 USC § 1341 (Fraud and Fraud) and 18 USC § 1343 (Telegraph, Radio Fraud, or Television)), https://www.jdsupra.com/legalnews/deconstructing-the-sec-s-cryptocurrency-3713403/The criminal charges against SBF allege, among other things, violations of 18 USC § 1343.

3. For example seeMaria Gracia Santillana Linares, SEC Chairman Gary Gensler hints that Ether is a security and under his jurisdictionForbes: Digital Assets (June 27, 2022), https://www.forbes.com/sites/mariagraciasantillanalinares/2022/06/27/sec-chairman-gary-gensler-implies-that-ether-is-a-security-and-falls-under-his-jurisdiction/ ?sh=31644ec47775; Leo Schwartz “Million Dollar Matter”: CFTC Chair To Regulate Cryptos Alongside SECFortune: Crypto (October 24, 2022), https://fortune.com/crypto/2022/10/24/million-dollar-question-cftc-chair-regulating-crypto-sec/.

Four. SEC v. Telegram Group, Inc.case number 1:19-cv-9439 (SDNY 11 October 2019), https://www.sec.gov/licigation/complaints/2019/comp-pr2019-212.pdf.

Five. SEC v. Ripple Labs, Inc.case number 1:20-cv-10832 (December 22, 2020 SDNY), https://www.sec.gov/licigation/complaints/2020/comp-pr2020-338.pdf.

6. SEC v. LBRY, Inc.case number 1:21-cv-00260 (DNH 29 March 2021), https://www.sec.gov/licigation/complaints/2021/comp25060.pdf.

7. look Taylor Locke, How FTX’s own token was the final nail in the coffin, Fortune (18 Nov 2022), https://fortune.com/crypto/2022/11/18/how-ftx-own-token-ftt-was-the-final-nail-in-its-coffin/.

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