SEC’s bitcoin ETF tweet fiasco may end in fraud charges, lawyers say
The agency gaffe will likely be followed by investigations into the hacker, the SEC, and maybe even X itself
rafapress/Shutterstock modified by Blockworks
The SEC’s official X account posted that all spot bitcoin ETFs had been approved Tuesday afternoon. Fifteen minutes later, SEC Chair Gary Gensler wrote that the SEC’s X account had been compromised — the announcement was fake.
Markets whipsawed, X (formerly Twitter) said the SEC didn’t have two-factor authentication enabled, and the crypto community gleefully reposted Gensler and SEC warnings about account security. The SEC officially greenlit spot bitcoin ETFs the next day.
As the schadenfreude settles, the SEC must probe what went wrong. Investigators will also try to find who hacked the account, and for what reasons. Legal experts say the hacker’s fate in court is bound to whether they made money from the post, and the SEC may be in for some uncomfortable questions.
The FBI is typically responsible for federal criminal investigations like the one against the SEC’s X hacker. Whether or not the culprit is caught will depend on who — and where — they are, lawyers told Blockworks.
If a state-backed espionage unit or a foreign national was behind the hack, it may be difficult to extradite and try the hacker in the US.
If the hacker traded on the post and turned a profit, it might increase their chances of their being caught due to heightened interest from government agencies and a paper trail left by the trades, Andrew Gordon, a crypto-focused lawyer, said.
For market manipulation or laughs?
If the hacker is found, the US Department of Justice (DOJ) would likely be involved in any potential criminal case. The minimum charge a potential hacker might face would be computer fraud, multiple lawyers said.
“Accessing someone else’s account illicitly without their permission or using it to do anything is a federal crime,” Brian L. Frye, law professor at the University of Kentucky, said.
“That said, I am very confident that any clever federal prosecutor can come up with lots of other charges that they could levy against the defendant as well … maybe something like wire fraud,” Frye added.
The DOJ went the wire fraud route against Joseph James O’Connor, the British hacker who gained access to a raft of celebrity Twitter accounts in 2020 and asked fans to send him bitcoin. O’Connor’s guilty plea also included counts of computer intrusion and money laundering. O’Connor is now serving a five-year prison sentence in the US.
While key details surrounding the hack are yet to emerge, one decider in the outcome of a potential criminal case will be whether the hacker tried to gain financially from the erroneous post, lawyers said. If they did profit, they would face worse consequences.
“I think it comes down to, what was the intent? Was it for market manipulation? Was it for the ‘lulz’?,” Gordon said.
Government agencies grapple with the fallout
Shortly after the X post snafu, the SEC released a vaguely-worded statement saying it would investigate the cause of the breach. As that investigation gets underway, one lawyer said the SEC might try to shift the blame to the platform where the hack took place.
“Given the backdrop of … Elon Musk’s [past] interactions with the SEC being quite colorful, I don’t think it’s outside the realm of reasonable speculation to say that the SEC could try to turn this on X and open an investigation into X for potential market manipulation rather than simply looking in the mirror,” George Campbell, attorney at web3-focused Antifirm, said.
Campbell added that while such an investigation might not result in any charges, it could come at the cost of the SEC properly investigating its own culpability.
He expects some sort of congressional investigation into the hack as well. In the wake of the incident, several GOP lawmakers chastised the SEC. Congressmen French Hill and Patrick McHenry said they would would draft a letter to Gensler and “start the process of getting to the bottom of how it happened.”
And in the high-profile world of crypto crimes, other government agencies may try to bolster their reputations through their involvement.
“I feel like the CFTC is really trying to be much more active on the enforcement front, and I think a bitcoin manipulation case would be really appealing,” a lawyer who declined to be named said.
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