Sharpening Old Tools: New York Prosecutors Drop the Hammer on Crypto in Innovative Ways

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One of the most publicized and controversial legal debates of 2023 continues to be the classification of cryptocurrencies and other digital assets: are they securities to be primarily regulated by the Securities and Exchange Commission (SEC)? ? Or are these commodities potentially subject to the jurisdiction of the Commodities Futures Trading Commissions (CFTC)? Or are they something else? If so, which digital assets are eligible for federal regulation? These issues continue to be litigated and are at the heart of several widely watched enforcement actions in 2023, including recent high-profile SEC actions against Binance Holdings (Binance) and Coinbase (Coinbase) and their affiliates. respective parties alleging, among other things, that certain digital assets traded on their platforms were securities. Meanwhile, state prosecutors weren’t shy about this question. In March 2023, the New York Attorney General filed a lawsuit against the KuCoin cryptocurrency trading platform, alleging that KuCoin, among others, traded several popular cryptocurrencies on its platform labeled as commodities or securities, including, controversially, the popular ETH coin used on the Ethereum blockchain network, but failed to register as a commodity or securities broker and had falsely presented as an exchange.

While government law enforcement is clearly undeterred, considering these thorny legal issues introduces additional complications to any enforcement action. To cut the Gordian knot, New York prosecutors are increasingly taking a different approach: indicting defendants in the cryptocurrency space under neutral laws that don’t require the government to prove that the asset in question is a security or a commodity. This growing trend has seen prosecutors bring charges under federal wire fraud and money laundering laws, and even the Foreign Corrupt Practices Act (FCPA). The initial success of this strategy will likely encourage law enforcement agencies to continue to take innovative action under these neutral laws and others to crack down on perceived wrongdoing in the digital asset industry. Caution dictates that businesses dealing with cryptocurrency or other digital assets keep in mind that the disputed status of digital assets under securities laws will not serve as a shield against lawsuits. The government will not hesitate to punish illegal conduct using all the tools at its disposal.

Insider Trading and Other Fraud

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