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Although active in space for several years, state attorneys general have taken increasingly aggressive steps over the past year to regulate crypto-based products and services and prosecute those who abuse it. an otherwise exciting innovation. In this article, we summarize the basics of crypto, as well as recent actions by state attorneys general regarding crypto-based products and services.
Crypto in brief
As a digital currency, cryptocurrency does not exist in any physical form, cannot be placed in a leather wallet like cash, and is not held in a bank with four walls and a safe. strong against the wicked. Built on blockchain technologies, the most popular cryptocurrencies use cryptography to manage and record transactions on decentralized and distributed ledgers.
Because they use decentralized and distributed ledgers, cryptocurrencies and cryptocurrency-based financial products are not tied to financial institutions or directly controlled by many laws and regulations that govern financial institutions1 and that is a sensitive point for some regulators concerned about the lack of regulation. facilitated all kinds of abuse.
Although they are not (yet) used for most financial transactions, the value of cryptocurrencies and the potential for abuse that results from them have increased tremendously. In April 2021, the total market value of the various publicly available cryptocurrencies reached $ 2 trillion 2 and last month the FTC noted that since October 2020, nearly 7,000 people have reported losses of more than 80 billion dollars. million dollars in cryptocurrency. scams. 3
To address these growing concerns, a number of state and federal regulators have taken steps to regulate cryptocurrencies. But at least for the time being, it has resulted in a patchwork of state and federal laws, rather than a comprehensive and cohesive regulatory regime. As Treasury Secretary Janet Yellen noted last May, “While there are several agencies that arguably have some capacity to deal with [cryptocurrency] through regulation, I frankly don’t think we have a framework in the United States that is quite up to par. “4
That said, state attorneys general are doing what they can and are certainly paying attention to consumer protection issues related to crypto-based products and services.
State action
Some states have taken steps to encourage innovation related to crypto. As late as May 2021, Nebraska Governor Pete Ricketts signed legislation creating a state banking charter for digital asset depositories and allowing existing state chartered banks in the state to ” open cryptocurrency banking divisions, which could drive growth in Nebraska for the crypto market. 5 Yet the most prominent trend is aggressive enforcement activity involving crypto-related financial products and services.
For example, in September 2020, Massachusetts Attorney General Maura Healey sued Stripe, Inc. for improperly facilitating transactions by people participating in an Initial Coin Offering (ICO) .6 Attorney General Healey a alleged that these individuals had fraudulently sold PlexCoin, resulting in the offering and sale of cryptocurrency.7 In addition to a payment of $ 120,000, Stripe agreed to improve its risk monitoring procedures, including improving procedures for filtering duplicates for accounts with shared bank accounts, improving monitoring of merchant websites, revising its procedures for handling law enforcement requests, and training employees in risk monitoring.8
In February 2021, New York Attorney General Letitia James reached a settlement agreement with Tether, a cryptocurrency trading platform that claimed to offer a “stable coin” backed by the US dollar.9 The Attorney General James alleged that Tether made false statements about its cryptocurrency, which was not fully backed by US dollars.10 In the settlement agreement, Tether agreed to pay $ 18.5 million of penalties, cease trading activities with New Yorkers, and provide more transparent information about support for its stablecoin.11
Also in February 2021, Attorney General James filed a lawsuit against Coinseed, Inc. and two of its senior executives. Attorney General James alleged that the Coinseed defendants illegally traded cryptocurrencies without registering as brokers and failed to disclose certain fees associated with trading virtual currencies on behalf of their investors.12 More recently, in May, Attorney General James filed a motion in the Coinseed Lawsuit, asking the court for a temporary restraining order, a preliminary injunction and the appointment of a receiver to immediately prevent the Coinseed defendants from carrying out further unauthorized transactions.13
And after?
We expect more regulatory oversight of crypto-based products and services. As their recent activity demonstrates, state attorneys general will remain at the forefront of this action.
Footnotes
1 For a more detailed understanding of cryptocurrency, see the article “What is cryptocurrency?” by Kate Ashford and Josh Schmidt.https: //www.forbes.com/advisor/investing/what-is-cryptocurrency/.
2 Noah Manskar, “Cryptocurrency Market Value Surpasses $ 2 Trillion For The First Time.” The New York Times (April 6, 2021), https://nypost.com/2021/04/06/cryptocurrency-market-value-tops- $ 2 trillion for the first time /.
3 “Cryptocurrency buzz leads to record investment scam losses.” Federal Trade Commission (May 17, 2021), https://www.ftc.gov/news-events/blogs/data-spotlight/2021/05/cryptocurrency-buzz-drives-record-investment-scam-losses.
4 “Yellen says US lacks adequate regulatory framework for crypto.” Bloomberg Tax (May 4, 2021), https://news.bloomberglaw.com/daily-tax-report/yellen-says-us-lacks-adequate-regulatory- framework-for-crypto? Context = article-related.
5 Jared Austin, “Cryptocurrency to be Regulated in Nebraska.” 1011 Now (May 26, 2021), https://www.1011now.com/2021/05/27/cryptocurrency-to-be-regulated-in-nebraska/.
6 “Payment processor must pay $ 120,000 for cryptocurrency program.” Office of Mass. Att’y General (September 18, 2020), https://www.mass.gov/news/payment-processor-to-pay-120000-in-connection-with-cryptocurrency-scheme.
7 Id.
8 Id.
9 “Attorney General James Ends Virtual Currency Trading Platform Bitfinex’s Illegal Activities in NY” Office of NY Att’y General (February 23, 2021), https://ag.ny.gov/press-release/2021/attorney-general – james-ends-virtual-currency-trading-platform-bitfinexs-illegal.
10 Id.
11 Id.
12 “Attorney General James is suing to shut down illegal cryptocurrency trading platform and virtual currency, seeks to recover fraudulent funds for thousands of investors.” NY Att’y General Office (February 17, 2021), https://ag.ny.gov/press-release/2021/attorney-general-james-sues-shut-down-illegal-cryptocurrency-trading-platform -et .
13 “Attorney General James seeks a court order immediately ending the continued fraud by the illegal virtual currency trading platform.” Office of NY Att’y General (May 7, 2021), https://ag.ny.gov/press-release/2021/attorney-general-james-seeks-court-order-immediately-halting-continued-fraud.
The content of this article is intended to provide a general guide on the subject. Specialist advice should be sought regarding your particular situation.
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