Randall Crater, the purported founder and principal operator of My Big Coin Pay Inc. (“MBCPI”), was indicted in a federal court in Massachusetts with four counts of wire fraud and three counts of unlawful monetary transactions in connection with the marketing of an allegedly fraudulent cryptocurrency, “My Big Coin.”
In January 2018, the Commodity Futures Trading Commission filed an enforcement action against MBCPI, Mr. Crater, and Mark Gillespie for allegedly engaging in a virtual currency scheme that misappropriated approximately US $6 million from 28 or more persons. In its civil case filed in the same federal court in Massachusetts, the CFTC charged the defendants with making false or misleading statements to customers and fraud. (Click here for details in the article “CFTC Sues Unregistered Company and Promoters of Fake Virtual Coin for Alleged Fraud and Operating Purported Ponzi Scheme” in the January 28, 2018 edition of Bridging the Week.)
According to the criminal indictment, between 2014 and 2017, Mr. Crater purportedly solicited investors to purchase My Big Coins, claiming they were functioning and valuable virtual currencies backed by gold and other assets. However, alleged the indictment, My Big Coins had no value and were not backed by any precious metal or other asset. As did the CFTC, the indictment claimed that Mr. Crater misappropriated US $6 million of investor funds for personal use.
Previously, defendants in the CFTC’s civil case involving MBCPI made a motion to dismiss, claiming the CFTC had no jurisdiction to bring enforcement actions against persons engaged in purported fraudulent activities involving cryptocurrencies. In September 2018, the court held that cryptocurrencies are commodities as defined under applicable law, and that the CFTC’s authority to bring enforcement actions under its fraud-based manipulation authority extends to fraud cases that are not necessarily also grounded in illicit market conduct. (Click here for background in the article “Second Federal Court Rules That Cryptocurrencies Are Commodities and CFTC Has Anti-Fraud Jurisdiction Over Alleged Wrongdoing” in the September 30, 2018 edition of Bridging the Week.)
Other legal or regulatory matters involving cryptoassets:
- OCC Once Again Tells Court That DFS Lawsuit Challenging FinTech Charter Still Before Its Time: The Office of the Comptroller of the Currency requested a federal court dismiss a challenge by the NY Department of Financial Services regarding OCC’s authority to grant special purpose national bank (“SPNB”) charters to entities that engage in financial technology businesses. NY DFS sued OCC over its authority to issue fintech charters in September 2018. (Click here for background in the article “NY DFS Sues OCC Over FinTech License; Other State Financial Regulators Say Their Legal Challenge Is Right Behind” in the September 16, 2018 edition of Bridging the Week.) OCC claimed that NY DFS’s lawsuit is premature because the agency has not granted any fintech charters let alone even received a SPNB charter application to date. Additionally, OCC asserted that, in any case, it has the authority to issue SPNBs because SPNB activities fall under the applicable law’s definition of “the business of banking.” In December 2017, a federal court in New York dismissed a prior lawsuit by NY DFS against OCC over its SPNB charter granting authority, ruling that the court lacked standing to hear the case because OCC had not yet finalized a decision to grant any SPNBs. (Click here for background regarding the prior court’s ruling against NY DFS in the article “Challenges to NY BitLicense and Potential OCC Fintech Charter Quashed” in the January 7, 2018 edition of Bridging the Week.)
My View: Both the CFTC and Securities and Exchange Commission have provided extensive guidance regarding what they believe falls within their regulatory remit related to cryptoassets. Courts are also beginning to weight in with greater frequency. However, legislators and regulators must be cognizant of the potentially inhibiting impact of government agency edict and case law arising from purportedly fraudulent conduct by nefarious persons in the development of potentially innovative and societally useful new technologies – such as distributed ledger technology.