Blockchain Attorney: Regulators Are About to Get Tough

Crypto companies need to be prepared for a very harsh regulatory environment, an attorney that specializes in blockchain technology said.

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key takeaways

  • American regulators are going to start to make good on their promises to crack down on the cryptocurrency industry, an attorney that specializes in blockchain technology said
  • Crypto companies are already being served with subpoenas and requests for information

Crypto companies need to be prepared for a very harsh regulatory environment, an attorney that specializes in blockchain technology said. 

The US Department of Justice is creating the National Cryptocurrency Enforcement Team to take over investigations and prosecutions of criminal activities associated with digital assets, Deputy Attorney General Lisa Monaco announced earlier this month. Now, attorneys in the cryptocurrency space are planning the next steps for clients. 

“We’ve understood from SEC Chair Gensler’s remarks for most of this year since he was confirmed to the post that the SEC is going to be more aggressive and bring more cases and take a close look at the entire crypto space,” said Daniel Payne, fintech and blockchain attorney at Murphy and McGonigle. “But the DOJ announcing a task force to focus on cryptocurrency is really another big step of government intervention here.” 

Payne, who represents companies that operate within the blockchain industry, said that crypto companies, especially exchanges, should expect to see a ramp-up in DOJ investigations. He anticipates an increase in a variety of charges, including securities fraud, mail or wire fraud, and money laundering. 

“We fully expect that the NCET’s investigations will result in more criminal cases in the crypto industry, such as those brought against Charlie Schrem (formerly of  BitInstant), members of BitMEX, and John McAfee,” said Murphy and McGonigle in a Client Alert last week. 

The announcement of the Team was shortly followed by the SEC Speaks event last week where Chair Gensler mentioned that digital assets need significantly more regulatory oversight. 

“There was a departure in tone from past events, it sounded a lot less like the SEC Speaks events we’ve had in the past, and a lot more like the aggressive tone that Chair Gensler has taken in his remarks in front of Congress and in front of other groups,” Payne said.

“The tone was that the current state of affairs is not sustainable. And the point there is that they believe a lot of crypto companies are operating outside of SEC regulations and the SEC is going to do something about it.” 

Shortly after Payne’s comments, the New York Attorney General announced Monday that it would be requiring two companies to halt operations within the state. The released letters sent to the companies, Nexo and Celcius, cite concerns with traded securities and request more information about practices. 

“Cryptocurrency platforms must follow the law, just like everyone else, which is why we are now directing two crypto companies to shut down and forcing three more to answer questions immediately,” said Attorney General Letitia James in a press release. “My office is responsible for ensuring industry players do not take advantage of unsuspecting investors.”

There has been an ongoing concern in recent months from the cryptocurrency community that lawmakers and regulators are not providing enough clarity when it comes to regulatory measures. 

Coinbase released its digital asset regulatory proposal this week where it suggested that one organization should take control of supervising the industry, given that jurisdiction seems to be a grey area. The exchange, along with others in the space, has argued that current regulatory constraints and lack of clear guidelines make it difficult for cryptocurrency companies to operate. 

“It seems like there is a disagreement between the industry and the regulator, as to whether the guidance that is out there is sufficient,” said Payne. “And the regulator, it sounds like is now getting to the point where they’re going to take action to back up all the aggressive enforcement statements they’ve been making this year, so our message to clients is to be prepared, the subpoenas are already flowing the investigations are already ongoing.” 

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