Litigation: Criminal

Subscribe to Litigation: Criminal

In late October, a New York district court refused to dismiss the Department of Justice’s (DOJ) indictment against defendant Nathaniel Chastain, who was charged with wire fraud and money laundering relating to his using insider knowledge to purchase non-fungible tokens (NFTs) prior to them being featured on OpenSea, an online NFT marketplace, and later selling them at a profit. (U.S. v. Chastain, No. 22-cr-305 (S.D.N.Y. Oct. 21, 2022)). Despite the headlines and the fact that the DOJ’s press release labeled this enforcement as charges brought in “the first ever digital asset insider trading scheme,” the Chastain indictment was not actually based on the typical insider trading statutes involving securities law violations, but instead the federal wire fraud statute.  Indeed, despite having an insider trading flavor, the word “security” does not appear in the indictment and the court, in refusing to dismiss the DOJ’s wire fraud claim, ruled that the Government’s wire fraud claim does not require the presence of a “security.”

The plot has thickened in the longest-running “whodunit” in the blockchain space: Who is Satoshi Nakamoto, the pseudonymous creator of Bitcoin and author of the white paper that started it all, Bitcoin: A Peer-to-Peer Electronic Cash System? Published in 2008, Nakamoto’s paper proposed a form of electronic cash that would operate purely peer-to-peer, without the need for a trusted intermediary (such as a centralized financial institution) and in a verifiable manner that protects against the “double-spend” problem. That white paper served as the launch pad for the Bitcoin network and inspired blockchain’s proliferation. Over a decade later, the true identity of Nakamoto and whether Nakamoto is a single person or a collective remain a mystery, despite speculation and multiple claims to the digital throne.

Recently, claimants turned to intellectual property registrations in their campaigns for recognition. In April 2019, Australian entrepreneur Craig Wright (who has long claimed to be Nakamoto) sparked controversy in the blockchain community by filing two copyright registrations claiming authorship of Nakamoto’s white paper (Reg. No. TXu002136996) and the original Bitcoin source code (Reg. No. TX0008708058). In the wake of Wright’s claims, on May 24, 2019, Wei Liu, reportedly a cryptocurrency entrepreneur and a Chinese citizen with an address in California, upped the ante by also filing a copyright registration (Reg. No. TX0008726120) asserting that he had in fact authored the white paper.

The gauntlet, it seemed, had been thrown down.

In early March, the Manhattan U.S. Attorney unsealed indictments against the leaders of the Bulgarian-based “purported” cryptocurrency “OneCoin” on wire fraud, money laundering and federal securities fraud charges relating to an alleged $3 billion pyramid scheme devised to market OneCoin. OneCoin’s lawyer has also been charged with conspiracy to commit money laundering for allegedly conducting financial transactions with some of the proceeds of the scheme to conceal the unlawful activities.