Cryptocurrency has revolutionized the world of finance, offering unprecedented opportunities for investment and innovation. However, wire fraud involving cryptocurrency has become a pervasive problem in recent years. Whether you are familiar with cryptocurrency or are still curious about it, this blog post explains how cryptocurrency transactions can involve conduct considered to be criminal wire fraud by the federal government.
Anyone who believes they are under investigation by a law enforcement agency relating to current or prior cryptocurrency activities should contact an experienced wire fraud criminal defense lawyer before speaking to anyone else. Stechschulte Nell, Attorneys at Law have extensive experience representing defendants charged with financial crimes in federal court. If you need legal representation in a criminal matter in either state or federal court, contact Stechschulte Nell today.
Understanding Cryptocurrency
Cryptocurrency is a digital or virtual form of currency that uses cryptography for security. It operates on a technology called blockchain. Blockchain is a decentralized and distributed ledger that records all transactions across a network of computers. The system is considered reliable because it is recorded in a massive number of servers around the globe and is thought to be secure against tampering or falsification of ledger entries.
The most well-known cryptocurrency is Bitcoin, but there are thousands of others, including Ethereum, Litecoin, Doge, and Ripple. In addition to cryptocurrencies themselves, another important player in the cryptocurrency market are the cryptocurrency exchanges, the platforms on which traders buy and sell their crypto coins or tokens.
The most notable recent crypto exchange in the news was FTX Trading Ltd., the company owned by Sam Bankman-Fried who was convicted of wire fraud, wire fraud conspiracy, securities fraud, securities fraud conspiracy, and money laundering in federal court.
Cryptocurrencies are used for various purposes, investment, transactions, and decentralized finance or (DeFi).
Investors buy and hold cryptocurrencies in hopes that their value will increase over time. Businesses and individuals accept cryptocurrencies as a form of payment to conduct everyday transactions at a lower cost than the traditional banking system. And blockchain’s capacity for decentralized financial activity allows transactions to be conducted outside of the traditional banking system, often with anonymity and without tax accountability.
More on the Topic > Cryptocurrency Fraud & Money Laundering
What Is Wire Fraud?
Wire fraud is a crime in which any wire or electronic communication device is used to intentionally use a scheme to defraud or mislead another person to obtain money or property. The statute is based on the mail fraud statute enacted in 1872 that prohibited similar conduct involving communications using the mail.
The communications prohibited by the wire fraud statute cover those transmitted by email, text, messaging, social media, radio, television, or another similar device.
Wire fraud is taken very seriously by law enforcement agencies.
Common elements of wire fraud include:
- Intent to Defraud: Wire fraud requires the perpetrator to have the intent to defraud the victim.
- Use of Electronic Communication: The use of electronic communication, such as emails or phone calls, to commit fraud is a key element.
- False Pretenses: The fraud typically involves false pretenses, misrepresentations, or deceptive tactics to convince the victim to send or spend money or valuables.
- Interstate or International Transmission: Federal wire fraud prosecutions involve the use of interstate or international wire communications which triggers federal jurisdiction.
Cryptocurrency and Wire Fraud: How It Works
Wire fraud involving cryptocurrency is essentially a fusion of traditional wire fraud and cryptocurrency technology. Here’s how it generally works.
The person committing the wire fraud contacts the victim via email, phone, or messaging service, posing as a trustworthy individual or organization. They may claim to be a cryptocurrency exchange, a well-known investor, or someone offering investment opportunities.
The person initiating the contact makes false promises of guaranteed high returns or investment opportunities in cryptocurrency. They often use high-pressure tactics to encourage the target to act quickly.
The target receives instructions on how to send cryptocurrency to the fraudster’s wallet. These instructions usually involve transferring funds to a digital wallet address provided by the perpetrator. Believing the promises made by the fraudster, the targeted person transfers cryptocurrency to the provided wallet address.
Once the cryptocurrency is transferred, it becomes nearly impossible to trace, because blockchain transactions allow for nearly complete anonymity.
Common Cryptocurrency Wire Fraud Scams
Several common cryptocurrency wire fraud scams have emerged over the years and have been the subject of federal investigations and prosecutions.
Phishing Scams: A person sends emails or messages that appear to be from legitimate cryptocurrency exchanges or organizations, asking for personal information or directing victims to a fake website designed to steal their login credentials.
Impersonation Scams: Scammers impersonate well-known figures in the cryptocurrency industry on social media or messaging platforms, offering investment opportunities that are too good to be true.
Ponzi Schemes: Fraudsters promise high returns on cryptocurrency investments, but instead of generating profits, they use new investors’ funds to pay previous investors, creating a fraudulent pyramid structure.
Fake Wallets: Fraudulent wallet apps or websites trick users into depositing cryptocurrency, only to steal their assets.
Investment Pools: Scammers lure victims into joining cryptocurrency investment pools with the promise of shared profits. However, they then disappear with participants’ funds.
Sam Bankman-Fried’s Cryptocurrency Wire Fraud
Sam Bankman-Fried was a very smart and sophisticated cryptocurrency trader who realized that he could make more money acting as a cryptocurrency exchange by earning fees executing other traders’ cryptocurrency transactions. His company, FTX Traders Ltd. quickly became one of the largest exchanges in the world, making Bankman-Fried a billionaire.
His wire fraud was conducted by using the huge sum of cryptocurrency holdings belonging to customers to finance another of his ventures that was losing money. The cryptocurrency tokens were used as collateral to secure massive loans from traditional banks.
The accounting requirements that are common to all securities companies were completely neglected at FTX and an industry report expressing doubt about FTX’s actual liquidity caused FTX platform users to withdraw their funds. Neither FTX nor Bankman-Fried had the money to repay the traders the billions of dollars they invested.
Get Cryptocurrency Criminal Defense in Tampa
Federal While Mr. Bankman-Fried lost his case in federal court, wire fraud prosecutions involving cryptocurrency need not result in conviction. There are viable legal defenses to wire fraud charges, whether the activity involves real cash, cryptocurrency, or other items of value.
Convictions require the government to prove the defendant had the criminal intent to defraud the alleged victim and acted alone or in concert with others to accomplish the fraud. The crime can only be committed by someone who has known of the representations made to the alleged victim are false or misleading.
Experienced criminal defense lawyers at Stechschulte Nell, Attorneys at Law in Tampa have successfully defended people accused of a wide range of financial crimes, including wire fraud. If you are under investigation or are charged with any federal wire fraud or a related crime, contact Stechschulte Nell to discuss your case today.
