As we previously reported, state attorneys general (AGs) are among the many regulators and law enforcers taking a significant interest in digital asset markets as more and more Americans invest in cryptocurrencies, non-fungible tokens (NFTs), and other novel digital assets that are subject to varying degrees of regulation and oversight. In nearly all states, AGs are charged with consumer protection duties, so it is not at all surprising that AGs are becoming more active in this space – and on a bipartisan basis.

In February 2022, Republican Florida Attorney General Ashley Moody launched a new consumer protection resource to help Floridians spot and avoid cryptocurrency scams, building upon a November 2021 alert from AG Moody’s office that Floridians were being targeted by a cryptocurrency-related bait-and-switch investing scheme. Likewise, Democratic Nevada Attorney General Aaron Ford recently issued an alert warning Nevadans to beware of scammers “targeting cryptocurrencies, non-fungible tokens (NFT) and quick response (QR) codes because of the ever-changing technological landscapes associated with each as more and more consumers use these technologies.” Many other AGs have issued similar warnings.

Like other broad-based consumer protection efforts, the AGs’ initiatives involve shoring up their relationships with federal agencies. Just last week, the National Association of Attorneys General hosted the Internal Revenue Service’s acting executive director of cyber and forensic services and the Department of Justice’s director of the national cryptocurrency enforcement team on a panel discussing digital asset-related frauds and scams. The panelists addressed a range of law enforcement concerns including drug trafficking, money laundering, and frauds, including romance scams, exit scams, Ponzi schemes, and investor frauds. While the panelists largely refrained from addressing digital asset regulatory frameworks, they emphasized the importance of integrating digital assets into the marketplace in a safe manner. They further noted that thoughtful regulation will advance law enforcement’s goal of rooting out illicit activities like “wash trading,” and that collaboration between law enforcers and regulators is critical.

While AGs are still building out their role in the complex and ever-evolving digital asset landscape, it is clear that their consumer protection – and, in some cases, law enforcement – tools will be leveraged when it comes to going after bad actors in the digital asset markets. Further, there appears to be a strong and growing synergy between state and federal law enforcers on these issues.

The vast majority of digital asset businesses are aiming to offer innovative and safe products that can provide access to finance and other critical opportunities to a broader, more diverse category of customers. Companies operating in the digital asset markets, particularly in those that are retail facing, should strongly consider ways to educate AGs on the benefits and consumer protections associated with their products and services so that they can distinguish themselves from bad actors that might taint certain products or the reputation of the industry as a whole.