7 major cases involving US regulators in the cryptocurrency space in 2020

Original source: Cointelegraph Chinese

Original article by Kirill Bryanov

As digital assets have made strides toward mainstream status in 2020, the guardians of the existing financial system have been working to minimize the disruption caused by their integration. Throughout 2020, U.S. regulatory and enforcement interventions have led to some projects in trouble, allowed traditional investors to further understand cryptocurrencies, and sent some clear messages to global cryptocurrency service providers. Naturally, the steady legalization and expansion of the crypto space has prompted regulators to intervene in it more than ever before. Here are the top 7 cases in which U.S. regulators and law enforcement agencies have stepped into the crypto space, which arguably had the most important impact on the relationship between the crypto industry and state power in 2020.

SEC vs Telegram

While the SEC first confronted Telegram over its token sale in October 2019 , the landmark case was not resolved until the summer of 2020. The original purpose of Telegram Open Network was to draw the hundreds of millions of users of Telegram Messenger into a global, blockchain-based financial ecosystem.

In 2018, TON raised about $1.7 billion by selling contracts related to its native token, Gram, to qualified investors. Given the potential conflict with the SEC, Telegram followed a framework called the Simple Agreement for Future Tokens (SAFT). The first stage of the fundraising process involved selling contractual rights to buy tokens when TON went live. Although these legal rights were sold as securities, in this case the tokens were issued under an exemption from Registration D, in theory they were not.

The SEC disagreed with Telegram's approach and took emergency action against Telegram and Telegram Open Network in federal court. The SEC believed that the two-phase token distribution plan still constituted the sale of unregistered securities, and the court ultimately supported this position. The federal court ultimately ruled that Telegram should be fined $18.5 million and that Telegram should return more than $1.2 billion to investors. TON ultimately failed to go online, but its confrontation with the SEC has become history and may be the last scene of the ICO era .

OCC authorizes cryptocurrency custody service

The Office of the Comptroller of the Currency (OCC) is an independent agency of the U.S. Treasury Department. The OCC's responsibility is to charter and supervise national banks and savings associations. U.S. financial institutions that want to operate nationwide must undergo a comprehensive review by the OCC.

On July 22, 2020, the OCC issued an interpretative letter authorizing federally chartered banks to provide cryptocurrency custody services. For institutions under its jurisdiction, the OCC has never prohibited them from holding digital assets on behalf of their customers, but the complete lack of guidance and legal clarity has prevented many credit institutions from expanding their services into the digital asset space. If a customer is interested in a bank that provides custody services, these banks may tell them that "the risk is too great now."

The letter states that encryption key escrow services are equivalent to physical safekeeping of assets.

This forward-thinking approach of the OCC towards digital currencies may be related to the fact that OCC Administrator Brian P. Brooks served as the Chief Legal Officer of Coinbase for two years before being appointed as the OCC Administrator.

US Department of Justice seizes $1 billion in Bitcoin

In the fall of 2020, the U.S. Department of Justice (DoJ) spent much of its time stepping up enforcement actions against cryptocurrency-related investors, based on a new set of guidelines issued by the Attorney General’s Office. This process culminated in the DOJ seizing $1 billion worth of Bitcoin in early November . The funds are believed to belong to an unnamed hacker who previously stole the funds from the now-defunct Silk Road darknet marketplace. In tracking this record-breaking haul of digital assets, blockchain analysis firm Chainalysis assisted U.S. government investigators.

With the price of Bitcoin soaring, U.S. law enforcement is likely to devote more energy and resources to tracking down cryptocurrency stolen in previous high-profile thefts in 2021. Blockchain intelligence companies will certainly be able to help.

DoJ and CFTC vs BitMEX

The fate of cryptocurrency derivatives platform BitMEX shows that the same can happen to companies that wear out the patience of U.S. regulators. Founded in the Seychelles, BitMEX has long been suspected of serving U.S. customers, making it subject to U.S. anti-money laundering and derivatives trading regulations.

Earlier in October 2020, the U.S. Department of Justice filed criminal charges against the founders of BitMEX , alleging that they "willfully failed to develop, implement, and maintain an adequate anti-money laundering (AML) program," while the U.S. Commodity Futures Trading Commission (CFTC) filed a civil lawsuit against the company, accusing it of facilitating the trading of unregistered securities by U.S. residents. BitMEX was forced to make emergency adjustments to its top management and hired a chief compliance officer.

Perhaps SEC Commissioner Hester Pierce aptly articulated the point of the incident when she called the BitMEX case a clear message to the global crypto industry: “When a product or service has U.S. users, it’s subject to U.S. law enforcement intervention.”

FinCEN vs Self-Hosted Wallets

A week before Christmas, the U.S. Treasury Department's Financial Crimes Enforcement Network (FinCEN) released a proposal that FinCEN proposed to develop long-term deterrent regulations aimed at increasing transaction transparency in the process of transferring digital funds from centralized exchanges to private wallets. If no changes are made, this regulation will require exchanges to collect personal information of wallet owners from senders if the transfer amount exceeds $10,000 in a day or a single transaction exceeds $3,000.

In addition to creating a ton of extra work for cryptocurrency exchanges, the proposed rules could deal another blow to the concept of private, peer-to-peer cryptocurrency trading. However, some observers believe that for those who wish to return to anonymous trading, it would be sufficient to simply transfer their holdings from a wallet on record with FinCEN to a new one.

SEC vs XRP

Unlike Telegram Open Network, which was rejected by the SEC but could have been launched, Ripple's XRP token has been listed and traded for nearly 7 years. On the day when it was charged by the SEC, XRP's market value ranked third among all cryptocurrencies.

Although Bitcoin and Ethereum have consistently ranked first and second in market capitalization, statements from SEC representatives have consistently denied the decentralized nature of these assets, and there has been some suspense over whether XRP is a currency or a security. A significant portion of the XRP supply is managed by a company called Ripple Labs.

In late December 2020, the SEC filed a lawsuit against Ripple , claiming that XRP is a security and that the distribution of the token is equivalent to offering an investment contract. The news caused the price of XRP to plummet and led to several major exchanges delisting XRP. Although the case will take several months to be heard, it is clear that the SEC's move will profoundly change the balance of power in the crypto space.

US Treasury vs BitGo

In the final days of 2020, the U.S. Treasury Department’s Office of Foreign Assets Control reminded cryptocurrency businesses with U.S. ties that another source of regulatory scrutiny is compliance with various sanctions programs. The U.S. Treasury Department eventually reached a $98,000 settlement with cryptocurrency custodian BitGo over 183 apparent violations of Treasury sanctions between 2015 and 2019. The company’s violations included failing to prevent users residing in sanctioned regions such as Crimea, Cuba, Iran, Sudan, and Syria from using BitGo’s online wallet.