The Department of Justice is investigating cryptocurrencies for fraud related to price manipulation.
Cryptocurrencies, such as Bitcoin and Ether, are often described as the Wild West of investing due to their largely unregulated nature and extreme volatility. That volatility has attracted a lot of interest, both from investors and the public. One party that has also taken an interest in cryptocurrencies in recent months is the U.S. Department of Justice (DOJ). As Bloomberg reports, the DOJ is investigating possible securities fraud linked to price manipulation of cryptocurrencies. The investigation is a sign that a crackdown on cryptocurrency fraud could be underway.
Volatility and a lack of regulation
Bitcoin and other cryptocurrencies gained massive media exposure last year when the value of a single Bitcoin skyrocketed from less than $6,900 at the beginning of November to over $17,500 just over a month later. By February, as Digital Trends reports, the price had collapsed back down to about $8,000. Other smaller cryptocurrencies saw similar price volatility.
While proponents of cryptocurrency claim that such volatility was simply the result of greater public interest (and investment) in Bitcoin, critics contend that the volatility made cryptocurrencies a prime target for fraud schemes. Those critics also pointed out that the lack of government regulation and a seeming reluctance on the part of many cryptocurrency exchanges to self-regulate made cryptocurrencies vulnerable to abuse.
DOJ begins cracking down
Concerns about cryptocurrency’s security vulnerabilities has led the DOJ to begin investigating and in some cases filing charges for cryptocurrency securities fraud. The two biggest schemes that the DOJ is investigating are spoofing, whereby a trader places many fake orders in order to trick other traders into buying or selling and then cancels those orders, and wash trading, whereby a trader trades with himself in order to give a false impression of high demand for a particular security.
Additionally, the DOJ is cracking down on initial coin offering (ICO) scams. ICOs are an investment vehicle whereby investors are given a form of cryptocurrency called tokens for investing in a startup. Instead of actually delivering the promised product, however, some of these startups have been accused of simply disappearing with their investors’ money.
These concerns over fraud and security have led a number of governments to start regulating cryptocurrencies. Japan and the Philippines, for example, have both introduced regulations while China has banned cryptocurrencies outright. The U.S., which considers cryptocurrencies to be securities and therefore subject to securities laws, appears to be the next major country to take a more regulatory approach to cryptocurrencies.
Fraud and financial crimes
With the DOJ cracking down on cryptocurrency fraud and other financial crimes, it is important for those who have been accused of an offense to talk to an attorney immediately. An attorney who is experienced in white collar crime cases can help clients defend themselves and assist them with building a case that best upholds their rights and interests.