DOJ Charges Two Russian Nationals With Hack of Mt. Gox, Conspiring to Launder 647,000 Bitcoins

Russian Nationals Charged With Hacking One Cryptocurrency Exchange and Illicitly Operating Another

According to court documents, Alexey Bilyuchenko, 43, and Aleksandr Verner, 29, both Russian nationals, are charged with conspiring to launder approximately 647,000 bitcoins from their hack of Mt. Gox. Bilyuchenko is also charged with conspiring with Alexander Vinnik to operate BTC-e from 2011 to 2017.

“This announcement marks an important milestone in two major cryptocurrency investigations. As alleged in the indictments, starting in 2011, Bilyuchenko and Verner stole a massive amount of cryptocurrency from Mt. Gox, contributing to the exchange’s ultimate insolvency. Armed with the ill-gotten gains from Mt. Gox, Bilyuchenko allegedly went on to help set up the notorious BTC-e virtual currency exchange, which laundered funds for cyber criminals worldwide,” said Assistant Attorney General Kenneth A. Polite, Jr. of the Justice Department’s Criminal Division. “These indictments highlight the department’s unwavering commitment to bring to justice bad actors in the cryptocurrency ecosystem and prevent the abuse of the financial system.”

Robinhood Removes 3 Crypto Tokens Following Regulatory Crackdown

Robinhood Markets Inc. will remove three tokens from its crypto trading platform, after a high-profile regulatory crackdown on some of the industry’s biggest exchanges.

Users will no longer be able to trade Solana, Cardano or Polygon on Robinhood, according to an announcement Friday. The change will go into effect June 27. Prices of all three of the tokens dropped more than 6%.

Why US DOJ Will File, Or Has Already Filed Under Seal, a Binance-Related Criminal Indictment

The future looks especially bleak for Binance.

Having worked in the Enforcement Division of the U.S. Securities and Exchange Commission (SEC) for almost 20 years and managed many SEC joint criminal prosecutions, IMHO, there exist a litany of indicators that the U.S. Department of Justice (DOJ) will file, or has already filed under seal, a Binance-related criminal indictment.

Money laundering involves disguising financial assets so they can be used without detection of the illegal activity that produced them. To me, the Complaints filed by the U.S. Commodity Futures and Exchange Commission (CFTC) and the SEC read more like criminal indictments, replete with allegations of fraud, deception, obstruction of justice and most of all, money laundering.

On regulation, the crypto industry has everything backward

To better understand this point, it is helpful to compare crypto’s plight to that of another innovative product that came shortly before — ridesharing. When Uber first launched, its business was illegal in almost every new city it entered. The company overcame this hurdle with one enormously powerful weapon — a product that consumers enjoyed. By solving the frequent problem of unreliable taxi service, Uber quickly developed a large and vocal constituency of riders and drivers. These ultimately forced policymakers to accommodate a business model that forever changed the way we get around. In sum, a great product compelled regulatory change.

The crypto industry seems to think the opposite — that regulatory change will compel a great product. This notion has led the industry to become mired in endless policy debates and fitful legislative efforts that only benefit their lawyers and lobbyists. The truth is that crypto is not a kitchen table issue because, at present, it fails to solve real problems that ordinary people face. In fact, politicians are far more likely to hear from constituents who have suffered losses in any one of the numerous crypto-related failures over the last year. This is not a recipe for legislative success.

Picking and Choosing Tokens to Prosecute Is ‘Pretty Unfair,’ Says Former SEC Cyber Chief

In fact, of the countless cryptocurrencies on the market, only a dozen or so have been called securities. Why is that?

Robert Cohen, former SEC Cyber Chief spoke to Laura Shin on Unchained Podcast about the disparity.

“There is a seeming element of real bad luck and randomness, and getting singled out to be one of the 10 or 12 tokens that are mentioned when there’s hundreds that could have been,” Cohen told the journalist and podcast host. “When you think about a government taking action, that sort of randomness seems rather unfair.”

“If the SEC were passing rules, it affects everyone the same way, and people [should] have a chance to comment,” he added.

Cohen, who now works as an attorney at Davis Polk & Wardwell LLP, also said the SEC’s actions are raising a cloud of suspicion where one may not be warranted.

“When the SEC says that a token is a security and was not registered, they seem to be implying that something wrong happened,” he said. “[It] casts a negative suggestion over the people involved in that token in the first place.”

What’s the Big Deal with Ephemeral Messaging?

There’s been a lot of chatter recently about using ephemeral messaging and off-channel communications. This topic got a lot of air time from SEC Staff members and other panelists at Securities Enforcement Forum West 2023, with the acronym “BYOD” (D for device) repeatedly used throughout the day, highlighting that some companies are rethinking BYOD policies. If this is news to you, this Holland & Knight blog reviews recordkeeping requirements that apply to broker-dealers and investment advisers and recent, related SEC and DOJ actions. Then, the blog goes on to say this:

“But what about public company issuers? Currently, under the federal securities laws, issuers are not subject to direct regulations on preservation of business communications. However, much like investment advisers, these types of communications may need to be retained by public companies if they satisfy another statutory recordkeeping obligation. For example, under Exchange Act Section 13(b)(2)(A), issuers are required to make and keep certain books and records that accurately and fairly reflect the transactions and dispositions of the assets of the issuer. But the scope of messages that issuers need to consider retaining may have increased exponentially. As detailed further below, recent DOJ guidance has brought these issues to their compliance doorstep as well.”

No Hidden Balls At The SEC

In May 2022, at the Securities Enforcement Forum West Conference, Gurbir Grewal, the Director of the Division of Enforcement for the U.S. Securities and Exchange Commission, created headlines in a speech that discussed perceived “gamesmanship” by defense attorneys in enforcement investigations.

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At the outset of a “fireside chat” at this year’s conference on May 23, Director Grewal seemed to change his tune slightly and made plain that defense counsel was only one side of the coin. Addressing his May 2022 remarks, Director Grewal said the message also “should be heard loud and clear” by the Enforcement Division’s investigative staff that “this shouldn’t be a game of gotcha,” they “shouldn’t be hiding the ball,” and “should be straightforward” as part of the commission’s truth-seeking mission.

SEC’s Binance, Coinbase Suits Highlight Need for U.S Crypto Regulatory Framework: JPMorgan

The regulator said last week it was suing Binance, Binance founder and CEO Changpeng “CZ” Zhao and the operating company for Binance.US on allegations of violating federal securities laws. A day later it sued rival exchange Coinbase (COIN) on similar charges.

The moves are “creating more urgency for U.S. lawmakers to come up with a comprehensive regulatory framework by this year,” JPMorgan said.

Until this happens, crypto activity will likely continue to move outside the U.S. and into decentralized entities. Crypto venture capital funding will also likely remain subdued, the bank said.

Congress should stop trying to make crypto happen

After the failures of crypto operations Terra/Luna, Celsius and FTX, most consumers have now wised up to the perils of crypto investment. According to one recent survey, 75 per cent of Americans who have heard of cryptocurrencies are not confident in their safety and reliability. The crypto industry’s parade of fraud and failure may also even be starting to wear down its previously stalwart venture capital supporters: there are some indications that some crypto venture capital investors are shifting their focus to artificial intelligence.

In this context, it’s particularly jarring to see Republican members of Congress propose a mammoth piece of draft legislation that is a prettily wrapped gift for the crypto industry. These members of Congress seem determined to legislate a market for crypto that the industry is struggling to sustain on its own. To paraphrase the character Regina George in the film Mean Girls, lawmakers should stop trying to make crypto happen.