Crypto has been the wild west of the financial world, a new frontier yet to be conquered with little to no law and order. Not long ago, people in the community used to say that if you lost Bitcoin, it’s like taking a bar of gold and shooting it into space, there is no way to retrieve it. But with greater adoption and more instances of scams, things are changing. Prosecution, conviction and sometimes retrieval of stolen crypto assets are happening. Let’s look at a few of the biggest legal challenges and cases in recent times against rising crypto crimes.
1. Bitfinex’s New York trouble
Bitfinex ran into trouble with the New York Attorney General (NYAG). The charges against Bitfinex include fraud and misleading investors. In the filing, Judge Joel Coehn dismissed a motion by Bitfinex to terminate an action by the NYAG that would prosecute Bitinex under a New York law — the Martin Act. The original allegation against Bitfinex by the attorney general was that Bitfinex was involved in a cover-up of an $850 million loss. This was done to mislead the investors, claimed the attorney general.
2. Blockchain.com vs Blockchain.io
A lawsuit brought by the owner of Blockchain.com against the owner of Blockchain.io can move forward after the judge hearing the case denied the defendant’s motion for dismissal. Blockchain Luxembourg S.A. & Blockchain (US), Inc., which own the domain name Blockchain.com, filed the lawsuit against Blockchain.io owner Paymium, SAS last year. The plaintiffs argue that Paymium’s domain name infringes its mark for “blockchain”. They also allege that Paymium conducts false advertising.
3. Software vs the crypto world
Software giant Oracle is suing a blockchain venture capital startup for trademark infringement and “cybersquatting,”. Oracle, based in Redwood City, California, has alleged CryptoOracle LLC and its owner Louis Kerner purposefully sought to leverage Oracle‘s reputation as an “innovator and leader within the technology industry” when it selected its brand name. In order to resolve the issue, Oracle sent a cease-and-desist letter, to which CryptoOracle responded by filing a trademark for the name ”crypto oracle”.
4. Ripple sued
XRP investor Bradley Sostack has amended a class action suit against Ripple, in which he alleges that the company misled investors and sold XRP as unregistered security in violation of federal law. Sostack submitted his latest filing on Aug. 5 to a United States district court in California. According to a report by CoinDesk on Aug. 13, the original class-action suit was filed about a year ago but had yet to gain traction as a class action suit. However, Ripple must now, reportedly, respond to this latest action by some time in mid-September.
5. Unregistered ICOs
The U.S. Securities and Exchange Commission (SEC) has sought to freeze the assets of Reggie Middleton, organizer of the $14.8 million Veritaseum (VERI) initial coin offering (ICO). SEC’s request for emergency injunctive relief last week including an asset freeze was granted by U.S. Eastern District Court of New York. This is following an investigation of the Veritaseum project. SEC alleges the ICO was not registered. Vertisaeum and its founder Reggie Middleton have responded and asked the Court to unfreeze assets.
6. Negligence by Coinbase
A California judge ruled that the cryptocurrency exchange Coinbase has to deal with a negligence lawsuit from people who purchased Bitcoin cash (BCH) following a listing that was allegedly fumbled on the exchange during the 2017 bull market. U.S. District Judge Vince Chhabria of the Northern District of California rebuffed Coinbase’s request for arbitration and would not dismiss buyers’ claims of negligence. The judge said it is “plausible” that Coinbase “breached its duty to maintain a functional market,” .
7. Former employer summoned
Ethereum co-founder Joseph Lubin was recently summoned to court in New York when a former employee initiated a lawsuit for more than $13 million. The case was filed by Harrison Hines who was formerly employed by Joseph Lubin. The summons alleges a variety of abuses tied to the Token Foundry project, including a breach of contract. Additionally, the plaintiff is seeking damages for unpaid profits, and fraud.
8. Pocketinns ITO(initial token offering)
Attorney General of New Jersey and the Chief of the New Jersey Bureau of Securities have filed a civil action complaint against Sarvajnya G . Mada and Pocketinns, Inc., accusing them of selling, “approximately $410,000 of unregistered securities to 217 investors in violation of…New Jersey Uniform Securities Law.” The State of New Jersey noted that PocketInns only required investors to confirm their accredited investor status by checking a box and upload income proof documents. The complaint states that only eleven PINNS investors provided documentation to substantiate their accredited status. Mada apparently admitted that “thirty to forty percent” of purchasers had not supplied any proof.
In February 2018, the SEC charged Bitfunder, a former Bitcoin-denominated platform, and its founder – Jon Montroll, with operating an unregistered securities exchange and defrauding users of that exchange. The SEC also charged the operator with making false and misleading statements in connection with an unregistered offering of securities. In its complaint, the SEC alleges that BitFunder was an unregistered online securities exchange and that Montroll defrauded exchange users by misappropriating their bitcoins and failing to disclose a cyberattack on BitFunder’s system that resulted in the theft of more than 6,000 bitcoins. The case reached a settlement with Montroll pleading guilty and has received a 14-month prison sentence
10. Seven years for ATM Coin issuer
A New York federal judge sentenced the operator of a binary options company to more than seven years in prison Monday for a $1.5 million scheme to defraud investors in the business and its cryptocurrency. U. S. District Judge Sandra J. Feuerstein handed Blake Harrison Kantor a prosecutor-recommended sentence of 86 months in prison and ordered him to forfeit $1.65 million and pay more than $800,000 in restitution to investors in Blue Bit Banc and its allegedly “worthless” digital currency ATM Coin.
11. “Community” prosecution
Six people have been charged in an alleged conspiracy to hijack SIM cards and steal cryptocurrency from unwitting victims, prosecutors said this week. The scheme, according to court documents, brought in more than $2 million. In an unsealed indictment, prosecutors in the US Attorney’s Office for the Eastern District of Michigan alleges that five of the people, living across the United States and one in Ireland, were members of a group called “The Community.” The hacking ring, prosecutors say, took part in a SIM swapping scam. The Irish citizen has already been deported to the US to face charges
12. A broken pyramid
The SEC has filed a civil suit against Daniel Pacheco, 45, of San Clemente, California, alleging he pervaded a cryptocurrency-based pyramid scheme called “IPro” that collected more than $26.5 million USD from investors. The SEC’s Los Angeles Regional Director Michele Wein Layne was quoted, “Pacheco hid an old fraud under the guise of cutting-edge technology…He enticed investors by offering them the opportunity to speculate in cryptocurrency, when in fact he was simply operating a pyramid scheme.”
13. Morgan Hunt and Kim Hecroft
Two people accused of fraudulently soliciting Bitcoin from investors were ordered to pay nearly $400,000 each in penalties and restitution in a suit brought by the Commodity Futures Trading Commission in Texas federal court, the agency announced Wednesday. Individuals using the names Morgan Hunt and Kim Hecroft convinced investors to fork over Bitcoin with promises to invest it in foreign currency contracts, binary options and diamonds between January 2017 and September 2018, but actually duped them out of tens of thousands of dollars, the CFTC said.
14. Bitcoin laundering
The Commodity Futures Trading Commission (CFTC) announced the filing of a civil enforcement action (Complaint) in the U.S. District Court for the Southern District of New York against Control-Finance Limited (Control-Finance). The company was providing Bitcoin trading and investments. The Complaint charges the defendants with exploiting public enthusiasm for Bitcoin by fraudulently obtaining and misappropriating at least 22,858.822 Bitcoin—worth at least $147 million at the time—from more than 1,000 customers.
15. SECbattles Longfin in court
In 2018, the Securities and Exchange Commission filed a preliminary injunction to freeze Longfin Corp.’s assets as the agency investigated whether the corporation violated securities laws. Now, the SEC has filed a complaint alleging fraudulent activity by Longfin and those who ran it. The commission alleges Longfin engaged in fraud to meet the requirements of listing on Nasdaq among other concerns.
16. Bitcoin Funding Team asset freeze
At the request of the Federal Trade Commission, a federal court has halted the activities of four individuals who allegedly promoted deceptive money-making schemes involving cryptocurrencies. These schemes falsely promised that participants could earn large returns by paying cryptocurrency such as Bitcoin or Litecoin to enroll in the schemes. In a complaint, the FTC alleges that three defendants – Thomas Dluca, Louis Gatto, and Eric Pinkston – promoted chain referral schemes known as Bitcoin Funding Team and My7Network. Using websites, YouTube videos, social media, and conference calls, the defendants promised big rewards for a small payment of Bitcoin or Litecoin.
17. Hacker for hire
Gunton, of Longland Close, was found guilty of hacking the telecommunications firm when he was 16. Last year, officers made a routine visit to ensure he was complying with a Sexual Harm Prevention Order imposed by the court in 2016. His computer revealed Gunton had offered to supply compromised personal data, including mobile phone numbers, for others to use for criminal purposes, such as intercepting calls and texts to commit fraud. He also advertised his services in exchange for $3,000 (£2,469) in Bitcoin, rather than hard currency, in a bid to hide the payments from the police. He was sentenced to 20 years in prison and was asked to pay $500,000.
18. India’s crypto ban
Indians have been effectively banned from using or trading crypto due to an RBI ban. The ban prevents banks from doing business with entities dealing directly or indirectly involved in crypto business. While a number of people brought a legal challenge to this ban in the supreme court, but the court has not taken any stance leaving the future of the technology in the country in jeopardy. Meanwhile, the government is planning a law which will bring a blanket ban on crypto.
19. Fight over banking services
Cryptocurrency exchange Bits of Gold received a huge boost this Monday after the Israeli Supreme Court ruled it could continue using an account with Bank Leumi.The cryptocurrency exchange had previously been unable to access its account after the bank had restricted access to it, citing regulatory concerns. Though Bank Leumi continued to object in principle to the decision, it should mean that Israeli firms doing business in digital assets will be able to connect to local banking services.“This is an exciting moment for us as a company and for the [cryptocurrency] community in general,” said Bits of Gold CEO Yuval Roash.
20. Funds seized by Santander Bank
Santander Bank had appealed an earlier court ruling which ordered that it returned funds belonging to Mercado Bitcoin, a Brazil-based cryptocurrency exchange that it had seized its funds over allegations that the nature of the firm’s business did not comply with the Bank’s policy. It was under those claims that Santander as we reported in March, seized up to R$1,350,733.00 or appr. $350,000 belonging to Mercado Bitcoin. However, the court ruled that Santander Bank’s actions were an “abuse of law since it is not liable to seize resources deposited in the current account of its account holders, due to fraudulent transactions carried out by third parties.” The Bank was ordered to pay back the seized funds with a 1% interest for the period during which it held the funds, with the total sum now amounting to 200,000 reals ($51,000) at the time of the latest ruling.
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