Facing Crypto Ponzi Scheme Charges?

A cryptocurrency Ponzi scheme is a type of investment fraud that uses funds from new investors to pay returns to earlier investors, creating the illusion of a profitable enterprise. The scheme is sustained not by legitimate investment profits, but by a constant flow of new money. When that flow stops, the entire structure collapses, and most investors lose everything.

Potential Charges:

Wire & Mail Fraud (18 U.S.C. §§ 1343, 1341)

• Use of communications systems to execute a fraudulent scheme can lead to rackable counts up to 20 years, or 30 years if involving financial institutions.

Securities Fraud: 15 U.S.C. § 78j(b) and SEC Rule 10b-5

• Using manipulative or deceptive devices in connection with the purchase or sale of registered or unregistered securities or securities-based swaps, in violation of rules set by the SEC to protect investors and the public interest.

Money Laundering (18 U.S.C. § 1956)

• Converting or hiding crypto proceeds can be treated as money laundering especially when layered through exchanges or mixing services.

Bank Fraud (18 U.S.C. § 1344)

• Charges arise if crypto transactions integrate traditional banking channels fraudulently.

RICO Conspiracy (18 U.S.C. § 1962(d)

• If prosecutors allege multiple fraudulent acts are part of an organized scheme, RICO charges permitting enhanced penalties may accompany fraud allegations.

What to Do If You’re Under Investigation

1. Do Not Speak With Investigators Without An Attorney Present

If you are contacted by law enforcement, regulators, or receive a subpoena, do not answer questions or provide documents before consulting an attorney. Even seemingly innocent statements can be used against you. Politely decline to comment and state that your attorney will be in touch. An attorney can help you understand the scope of the investigation, communicate with authorities, and develop a defense strategy.

2. Preserve All Relevant Documents

Do not destroy, alter, or conceal any documents, emails, or digital records. Tampering with evidence can lead to additional criminal charges. Instead, gather and secure all records related to your crypto activities, including transaction logs, communications, and marketing materials.

3. Avoid Discussing the Case With Others

Do not discuss the investigation with employees, business partners, or friends. Anything you say could be subpoenaed or used as evidence. All communications about the case should go through your attorney.

4. Assess and Protect Your Assets

Investigations often involve asset freezes or forfeiture actions. Your attorney can advise on lawful steps to protect your assets and respond to government actions.

5. Understand the Allegations

Ponzi scheme allegations often hinge on whether returns to earlier investors were paid from new investors’ funds, rather than legitimate profits. Your attorney will review the facts and help you understand the government’s theory.

6. Prepare for Possible Parallel Proceedings

Crypto Ponzi scheme investigations may involve multiple agencies (DOJ, SEC, CFTC, state regulators) and both criminal and civil proceedings. Your legal team should be prepared to respond on all fronts.

How We Fight Crypto Ponzi Scheme Charges

1. Challenge Intent to Defraud

The government must prove specific intent to defraud beyond a reasonable doubt. We demonstrate that the client lacked fraudulent intent and genuinely believed the investment was legitimate.

2. Demonstrate Legitimate Business Operations

Distinguish the client's activities from a classic Ponzi scheme by showing genuine business operations and revenue generation.

3. Argue Losses Resulted from Market Volatility, Not Fraud

Demonstrate that investor losses resulted from cryptocurrency market volatility and external market forces, not criminal conduct.

4. Challenge Whether the Crypto Asset is a Security

Argue that the cryptocurrency or token does not meet the definition of a security under the Howey test, thus challenging SEC jurisdiction.

5. Attack the Evidence and Procedural Violations

Challenge the admissibility and reliability of the government's evidence.

6. Prove Lack of Knowledge or Limited Involvement

Demonstrate that the client was unaware of any fraudulent nature of the scheme or had minimal involvement.

7. Demonstrate Good Faith Compliance Efforts

Show proactive attempts to comply with evolving cryptocurrency regulations.

8. Challenge Witness Credibility

Undermine the credibility of prosecution witnesses, including cooperating co-defendants and investor witnesses.

Possible Sentencing & Penalties in New York

Wire Fraud (18 U.S.C. § 1343):

• Maximum imprisonment of 20 years and fines under Title 18 18 U.S.C. § 1343.

Mail Fraud (18 U.S.C. § 1341):

• Conviction results in either a fine, imprisonment, or both with the same 20-year maximum as wire fraud 18 U.S.C. § 1341.

Money Laundering - 18 U.S.C. § 1956:

• Maximum penalty of 20 years imprisonment and a fine of not more than $500,000 or twice the value of the property involved in the transaction, whichever is greater 18 U.S.C. § 1956.

RICO Conspiracy (18 U.S.C. § 1962(d):

• Each count carries a maximum sentence of up to 20 years in federal prison, or life imprisonment if the underlying crime warrants it, along with fines up to $250,000 or twice the proceeds of the offense. Additionally, asset forfeiture may be enforced, including personal and business property linked to the criminal enterprise.

Primary Guideline - § 2B1.1 (Theft, Property Destruction, and Fraud):

• Most cryptocurrency fraud cases are sentenced under § 2B1.1, which uses a loss-based calculation system. The loss table provides sentencing enhancements in two-level increments, with the current table providing up to 30 levels for offenses where the loss exceeded $400,000,000.

Key Enhancement Factors:

1. Loss Amount: The primary driver of sentence length under § 2B1.1
2. Number of Victims: Enhanced penalties apply for more than 10 victims (2 levels), 50 or more victims (4 levels), and 250 or more victims (6 levels total) Amendment 653 
3. Sophisticated Means: Additional enhancements for complex schemes
4. Leadership Role: Enhancements for organizers and leaders
5. Abuse of Trust: Additional penalties for defendants in positions of trust 

Forfeiture and Asset Recovery:

• According to 18 U.S.C. §§ 981, 982, federal law subjects any property involved in or traceable to wire fraud or money laundering to forfeiture. This means the government can seize bank accounts, cryptocurrency wallets, real estate, vehicles, and other luxury goods purchased with the proceeds of the alleged scheme.

Supervised Release and Probation:‍

• Courts typically impose supervised release terms of 1-3 years for fraud offenses, with standard conditions including:
  
  • No further criminal activity
  • Cooperation with probation officers
  • Financial disclosure and monitoring
  • Computer and internet usage restrictions
  • Restitution payments

Special Conditions for Cryptocurrency Cases:

• The following may constitute additional, special conditions ordered by the Court and/or recommended by Probation as it pertains to those who have been convicted of a cryptocurrency-related fraud:
  
  • Prohibition on cryptocurrency trading or transactions
  • Asset monitoring and reporting requirements
  • Technology usage restrictions
  • Financial account monitoring

Examples and Related Cases

In the age of “retail” trading and with cryptocurrency becoming a more accessible investment vehicle, our firm has advised individuals as it pertains to these investments. We have also defended individuals who have been accused of cryptocurrency-related fraud charges.

One such charge is referred to as the “pump-and-dump” scheme, where an individual or group of individuals first acquire a large sum of a stock or cryptocurrency asset at an extremely low price.  Once acquired, the individual or group works to pump the price up, typically by using social media and other internet bots (reddit, telegram, discord) to produce false or misleading information. This pump effort then causes the price to rise drastically, at which point the original group sells all of their shares at a significant profit.  Ultimately, this is a form of securities fraud that involves artificially inflating the price of an owned stock through false and misleading positive statements (pump), in order to sell the cheaply purchased stock at a higher price (dump).

Our firm recently represented an individual who was accused of participating in a similar scheme, while also trading on inside information. The combination of this alleged behavior led to numerous federal cases being brought. Our client was on the receiving end of a grand-jury subpoena, which we were able to successfully quash by persuading prosecutors that our client was an innocent participant. No charges were brought. 

Your Defense Begins Now

If you or a loved one has been charged or is under investigation for a crypto Ponzi scheme in New York or federally, do not wait. The sooner your speak with an experienced criminal defense attorney who has worked on both sides of the aisle, the better your outcome could be.

Contact The Law Offices of Jason Goldman for a consultation immediately. Our team is ready to begin building a strong defense tailored to your case.