To help you keep abreast of relevant activities, below find a breakdown of some of the biggest events at the federal and state levels to impact the Consumer Finance Services industry this past week:

Federal Activities

State Activities

Federal Activities:

  • On September 30, the Commodity Futures Trading Commission (CFTC) filed an enforcement action against crypto futures and spot market exchange Digitex and its founder and CEO Adam Todd. The CFTC alleged that Digitex violated the Commodity Exchange Act by failing to register as a futures commission merchant. The complaint also alleged the failure to implement know-your-customer and customer information program procedures required by the Bank Secrecy Act. Additionally, the CFTC alleged that Digitex attempted to manipulate the value of its token DGTX by using noneconomic trading activity to artificially pump the price of DGTX. For more information, click here.
  • On September 30, the Securities and Exchange Commission (SEC) filed an enforcement action against Arbitrade Ltd. and Cryptobontix, Inc. for allegedly engaging in a pump-and-dump scheme regarding a crypto-asset security named “Dignity,” which Arbitrade and Cryptobontix falsely represented to investors was backed by $10 billion in gold bullion the entities obtained through a purchase transaction. For more information, click here.
  • On September 29, U.S. Senator Bill Hagerty (R-TN) introduced a crypto-related bill in the Senate. If enacted, the bill would provide a two-year safe harbor exemption from SEC-initiated enforcement actions to entities that facilitate transactions of cryptocurrencies that the SEC deemed as securities. The text of the bill is currently unavailable. For more information, click here.
  • On September 29, a federal Houston judge unsealed a complaint the SEC previously filed on September 19 against Mauricio Chavez and Giorgio Benvenuto and their company CryptoFX LLC. The SEC alleged that Chavez functioned as an unregistered investment adviser in violation of federal securities law, and together, he and Benvenuto raised over $12 million from approximately 5,000 investors. Notably, the SEC alleged that Chavez misappropriated the majority of investor funds to finance his unrelated real estate company and extravagant lifestyle, while also maintaining the illusion of CryptoFX’s prosperity through significant Ponzi payments. For more information, click here.
  • On September 29, the Consumer Financial Protection Bureau (CFPB) released a special edition of Supervisory Highlights on recent examination findings, covering the practices of student loan servicers and schools that lend to students directly. The exams found that these schools had improper blanket policies of withholding transcripts to force students to make payments. These findings come after the CFPB announced earlier this year that it would examine the operations of colleges that operate lending businesses. For more information, click here.
  • On September 29, an independent examiner was appointed in the Celsius bankruptcy case. For more information, click here.
  • On September 28, the SEC filed an enforcement action against the Hydrogen Technology Corporation (Hydrogen), its former CEO Michael Ross Kane, and Moonwalkers Trading Limited (Moonwalkers) CEO Tyler Ostern, alleging that Hydrogen offered and sold unregistered crypto-asset securities called “Hydro” in violation of federal securities laws. Additionally, the SEC alleged Hydrogen privately hired Moonwalkers to fraudulently manipulate the price and volume of Hydro tokens traded on crypto-asset trading platforms, so Hydrogen could sell its Hydrogen tokens at a greater profit. For more information, click here.
  • On September 28, U.S. Senators Cynthia Lummis (R-WY) and Marsha Blackburn (R-TN) introduced a bill, titled the Cryptocurrency Cybersecurity Information Sharing Act. If enacted, the bill would amend the Cybersecurity Information Sharing Act of 2015 to include voluntary information sharing of cyber threat indicators among cryptocurrency companies. For more information, click here.
  • On September 27, CFTC Commissioner Caroline Pham delivered a keynote address at CordaCon 2022 in London. Commissioner Pham discussed her 10 fundamentals for responsible digital asset markets — the first of which is to determine whether a particular financial instrument constitutes a “security” or a different type of financial product. For more information, click here.
  • On September 26, the Federal Trade Commission (FTC) issue blog post “Buy now, pay later — and comply with the FTC Act immediately,” regarding the marketing of payment plans known as Buy Now, Pay Later (BNPL). It reminds businesses that if they offer BNPL payment options as a retailer or BNPL company, then the FTC Act’s basic consumer protection ground rules apply. For more information, click here.
  • On September 26, Representative French Hill introduced H.R. 8985 — the Credit Access and Inclusion Act of 2022 — as a companion bill to the bill Senator Tim Scott introduced to the Senate in 2021. H.R. 8985 would allow public housing authorities, utility, and telecommunications companies to furnish payment information for things like utility bills and phone payments to credit reporting agencies to help consumers enhance their credit scores. H.R. 8985 has been referred to the House Committee on Financial Services for its consideration. For more information, click here.
  • On September 23, while delivering remarks at the Brookings Institute, Under Secretary for the U.S. Department of Treasury (Treasury) of Domestic Finance Nellie Liang discussed, among other things, the Treasury’s concerns with crypto assets, including operational failures, market manipulation, frauds, thefts, and scams. Notably, based on these concerns, Under Secretary Liang remarked that the Treasury recommends federal regulatory agencies continue to “aggressively pursue” enforcement efforts in the crypto-asset sector. For more information, click here.
  • On September 22, Senate Banking Committee and House Financial Services Committee members, led by Senator Cynthia Lummis (R-WY), filed an amicus brief in support of Custodia Bank, the first U.S. digital asset bank that sued the Federal Reserve Board and the Federal Reserve Bank of Kansas City on June 27. In its complaint filed, Custodia Bank alleged that the Federal Reserve improperly failed to act upon Custodia Bank’s application for a master account with the Federal Reserve. For more information, click here.
  • On September 22, the Treasury issued a fact sheet, summarizing the key takeaways from its report “Crypto-Assets: Implications for Consumers, Investors, and Businesses,” published by the Treasury in accordance with President Joe Biden’s Executive Order 14067 on “Ensuring Responsible Development of Digital Assets.” For more information, click here.
  • On September 22, a federal grand jury in the District of Utah charged James Wolfgramm and two of his businesses, Bitex LLC and Ohana Financial Capital, Inc., with wire fraud and money laundering. The indictment alleged, among other things, that Wolfgramm and Bitex collected approximately $1.7 million from two victims by purporting to sell a high-powered crypto mining machine that did not exist. For more information, click here.
  • On September 1, compliance data firm Dynamic Securities Analytics, Inc. (DSA) published its analysis of CFPB consumer cryptocurrency complaints over a three-year period, which entailed comparing CFPB data against cryptocurrency complaints filed with the FTC and FBI, as well as suspicious activity reports filed with FinCEN. Between January 1, 2020 and August 26, 2022, the CFPB received 2,734 confirmed crypto-related consumer complaints against digital-asset-centric companies in its public database. For more information, click here. For more information on the research analysis conducted by DSA, click here.

State Activities:

  • On September 30, Massachusetts Attorney General Maura Healy joined 10 other attorneys general in a letter, supporting the three major credit card companies’ adoption of a new merchant category code for the sale of firearms and ammunition. The letter — led by New Jersey Attorney General Matthew Platkin, District of Columbia Attorney General Karl Racine, and Delaware Attorney General Kathy Jennings — highlighted the belief that such codes will improve available data to aid state and federal law enforcement with tracking and preventing illegal sales of firearms and ammunition. New merchant code opponents cited Second Amendment concerns, among other reasons, to explain why the codes should not have been adopted. For more information, click here.
  • On September 28, the Delaware Department of Justice’s Investor Protection Unit issued a cease-and-desist summary order against 23 entities and individuals involved in a cryptocurrency scam known as the “pig butchering scam” — a scam that entails a scammer building trust with a victim only to persuade the victim to deposit his/her crypto assets into a wallet controlled by the scammer. For more information, click here.
  • On September 27, Governor Gavin Newsom signed the Military and Veteran Consumer Protection Act of 2022 (SB 1311) into law to enhance consumer protections for military service members. Among other things, the bill (1) imposes an additional civil penalty of $2,500 for each violation of California’s Unfair Competition Law perpetrated against service members and veterans; (2) creates a right to appear remotely, or through another military member, for small claims matters that seek return of improperly withheld security deposits; (3) clarifies existing law to prevent interest accrual on guard and reserve members’ deferred mortgage obligations during the period of deferment; (4) prohibits businesses from conditioning military discounts on the member or veteran waiving certain rights under federal or state law; and (5) provides additional rights for service members seeking termination of an auto lease due to reassignment or deployment. For more information, click here.
  • On September 27, the California Department of Financial Protection (CA-DFPI) announced that it issued desist-and-refrain orders to 11 different crypto-related trading entities, each of which allegedly used investor funds to pay profits to other investors, in a manner of a Ponzi scheme. For more information, click here.
  • On September 26, the CA-DFPI joined seven state regulators in filing suit against Nexo, a crypto-related platform that offers lending, borrowing, and exchange services to retail investors. In its desist-and-refrain order, the CA-DFPI concluded that accounts relating to Nexo’s “Earn Interest Product,” which enables retail investors to earn interest upwards of 36% APR on crypto assets deposited onto Nexo’s platform by the investor, constitute the unqualified sale of securities in the form of investment contracts in violation of California law. For more information, click here.
  • On September 26, New York Attorney General Letitia James joined seven state regulators in filing suit against Nexo, Inc. (Nexo), a crypto-related platform that offers lending, borrowing, and exchange services to retail investors. In its complaint, the attorney general’s office (AGO) alleged Nexo violated New York law by failing to register with the AGO as a securities and commodities broker or dealer prior to offering interest-bearing, crypto-asset accounts to New York residents. For more information, click here.
  • On September 23, California Governor Gavin Newsom vetoed AB 2269. If enacted, the bill would have required virtually any entity engaging in digital financial asset business activities to obtain a license from the CA-DFPI to permissibly engage in such business activities. In his letter to California State Assembly members, Governor Newsom noted that imposing a licensing regime on crypto-related businesses without an established federal cryptocurrency regulatory framework was “premature.” For more information, click here.