Facing Initial Coin Offering (ICO) Fraud Charges?

Initial Coin Offering (ICO) Fraud

ICO fraud represents one of the most complex prosecuted areas of cryptocurrency enforcement, with criminal charges often arising from SEC-initiated investigations that progress into criminal prosecutions under DOJ or FBI authority, leading to both civil and criminal penalties. Federal prosecutors typically charge ICO fraud under the wire fraud statute (18 U.S.C. § 1343), which criminalizes schemes to defraud using interstate wire communications.

Pump and Dump Schemes

A "pump and dump" scheme is a form of securities fraud where the price of a stock, or in this case, cryptocurrency (the "pump"), is followed by the sale of the asset by the schemers at the heightened price (the "dump"). These deceptive tactics allegedly attracted new investors and purchasers, which resulted in an increase in the tokens' trading prices. The defendants are then alleged to have sold their tokens at the artificially inflated prices, a fraud commonly known as a "pump and dump."

Market Manipulation

Market manipulation is the interference with the free and fair operation of the market and refers to any attempt to interfere with the normal free operation of the market and to create an artificial market for a security, currency, or commodity. Market manipulation is designed to deceive investors by controlling or artificially affecting the price of securities and always seeks to influence prices to mislead other market participants.

Federal Agencies Involved in Cryptocurrency Fraud Prosecutions

Department of Justice (DOJ)

• The National Cryptocurrency Enforcement Team (NCET) was established in February 2022 to address the challenge posed by the criminal misuse of cryptocurrencies and digital assets. The NCET works to identify, investigate, support and pursue the department's cases involving the criminal use of digital assets, with a particular focus on virtual currency exchanges, mixing and tumbling services, infrastructure providers, and other entities that are enabling the misuse of cryptocurrency and related technologies to commit or facilitate criminal activity. 

Securities and Exchange Commission (SEC)

• The SEC's Crypto Task Force seeks to help the Commission provide clarity on the application of the federal securities laws to the crypto asset market, and seeks to recommend practical policy measures that aim to foster innovation and protect investors. The Enforcement Division's Cyber and Emerging Technologies Unit focuses on combating cyber-related misconduct and protecting retail investors from bad actors in the emerging technologies space. 

Commodity Futures Trading Commission (CFTC)

• The CFTC goes after crypto products they view as commodities, such as Bitcoin and Ethereum. They bring civil actions for fraud and unregistered trading platforms. This enforcement action is the first brought by the CFTC for a manipulative scheme involving digital assets. CFTC Press Release (www.cftc.gov)

Federal Bureau of Investigation (FBI)

• The Federal Bureau of Investigation (FBI) took what it called the "unprecedented step" of creating its own cryptocurrency token, the "NexFundAI Token." The FBI developed a cryptocurrency called NexFundAI as part of an investigation into price manipulation within the crypto markets.

Internal Revenue Service Criminal Investigation (IRS-CI)

• IRS-CI is the criminal investigative arm of the IRS, responsible for conducting financial crime investigations, including tax fraud, narcotics trafficking, money-laundering, public corruption, healthcare fraud, identity theft and more. IRS-CI special agents are the only federal law enforcement agents with investigative jurisdiction over violations of the Internal Revenue Code, obtaining a more than a 90 percent federal conviction rate.

What Federal Authorities Can Accuse You Of

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

Whoever, having devised or intending to devise any scheme or artifice to defraud, or for obtaining money or property by means of false or fraudulent pretenses, representations, or promises, transmits or causes to be transmitted by means of wire, radio, or television communication in interstate or foreign commerce, any writings, signs, signals, pictures, or sounds for the purpose of executing such scheme or artifice.

Securities & Commodities Fraud

Misrepresentations or deceptive promotion of tokens may trigger charges under securities statutes like Section 10(b) of the Securities Exchange Act and Rule 10b-5, or under commodities fraud laws. 

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. Section 1341 (relating to mail fraud) or section 1343 (relating to wire fraud) affecting a financial institution are predicate offenses for money laundering charges. 

RICO (Racketeering Influenced and Corrupt Organizations)

Wire fraud and mail fraud are included as "racketeering activity" under RICO, which means any act which is indictable under section 1341 (relating to mail fraud), section 1343 (relating to wire fraud) can support RICO charges if prosecutors allege multiple fraudulent acts are part of an organized scheme.

Coordination Between Agencies

Several government agencies have a potential role to play in regulating the purchase, sale, maintenance and transmission of cryptocurrency, including the Department of Justice (DOJ), the Securities and Exchange Commission (SEC), the Commodities and Futures Trading Commission (CFTC), the Financial Crimes Enforcement Network (FinCEN) and the Office of Foreign Assets Control (OFAC), among others. It is often unclear whether digital assets neatly fit into traditional regulatory categories – such as those for 'commodities’ or ‘securities’ – and federal regulators have sometimes been accused of 'regulating by enforcement'.

Civil vs. Criminal Proceedings

ICO fraud could begin as an internal investigation by the Securities and Exchange Commission ("SEC") and progress into a criminal prosecution under the authority of the Department of Justice ("DOJ") or the Federal Bureau of Investigation ("FBI"). While the SEC does not prosecute criminal cases involving ICO fraud by itself, it will either coordinate the investigative process with other federal agencies or refer the case to the DOJ to pursue criminal charges for ICO fraud. ICO fraud can lead to both civil and criminal penalties.

Undercover Operations

The Federal Bureau of Investigation (FBI) took what it called the "unprecedented step" of creating its own cryptocurrency token, the "NexFundAI Token." FBI agents posed as NexFundAI promoters on videoconferences and in Telegram chats with the alleged fraudsters to collect key evidence of their alleged schemes.

Key Prosecution Strategies

• Wire Fraud as Foundation: The federal wire fraud statute, a favored tool of white collar federal prosecutors, criminalizes schemes to defraud aided by an interstate wire transmission, be it telephone, email, or, any social media platforms. Wire fraud remains the bread and butter of federal white collar prosecutors and applies equally to innovative technologies such as cryptocurrency.
• Securities Law Application: Securities law governs the issuance, distribution, and trading of financial instruments like stocks and bonds to protect investors from fraud and ensure fair, transparent markets. In the U.S., federal laws such as the Securities Act of 1933 and the Securities Exchange Act of 1934 mandate public disclosure and registration of securities. These laws regulate public offerings (IPOs), private placements, crowdfunding, mergers and acquisitions involving equity, and ongoing reporting requirements for public companies.‍
• Market Manipulation Focus: The DOJ has recently gone after, in a significant way, what they believe to be unscrupulous market manipulation of various alt and meme coins. Effectively, the DOJ is targeting market makers who allegedly manipulate new coins through match or wash trading to "juice" the volume of various coins.

What To Do if You Think You’re Involved

If you or your company is being targeted by investigators, law enforcement, or even civilians as it relates to ICO, the same general principles hold true as that of other regulatory and criminal violations.

In turn, it would be prudent to immediately retain a litigator to preserve important, exculpatory documentation by doing a thorough forensic download of any financials, communications, and other related documents. Having counsel will also assure that neither you nor anyone at your company inadvertently makes incriminating statements that could later negate or hamper potential defenses to these charges.

At the same time, it is important to not delete or scrub the above-mentioned materials - such actions may give the impression of guilt even where none exists. It could also lead to unnecessary obstruction of justice or tampering charges.

Retain Experienced Federal Criminal Defense Counsel immediately

This is your most critical first step. Obtaining the services of a top-tier defense attorney is the first step you should take in your federal criminal case. The sooner you hire an experienced federal defense attorney, the more likely you will be to avoid criminal charges.

Why Immediate Legal Representation is Essential:

• In many instances, the way a target acts during the course of an FBI investigation determines whether that person is charged at all. Thus, the steps you take while the federal investigation is pending are often more important than the defense you put on at trial.
• An attorney can prepare detailed defense strategies on your behalf to combat ICO fraud allegations.
• A skilled defense attorney can help you avoid common mistakes that many targets make like lying to a federal officer or obstructing justice.

Exercise Your Right to Remain Silent and Avoid to Federal Agents

Never speak to federal agents without your attorney present. If federal agents approach you, stay calm and respectful, but do not answer their questions. Politely tell them you want to speak with a defense attorney first. You have the right to remain silent under the Fifth Amendment, and anything you say can and will be used by federal prosecutors to build their case.

Critical Guidelines:

• If federal agents attempt to speak with you during the investigation stage of your case, take a step back and think before you agree to talk with them. Always remember that you are under no obligation to say anything. They will employ tactics that make you feel pressured into speaking with them, but it is entirely your choice.
• You are perfectly within your rights to inform law enforcement and federal agencies that you want to wait and discuss all matters with your attorney first. Remember that federal agencies can use anything you say and do against you. Do not give them this opportunity.
• When you are first questioned or approached, the best strategy is to not say anything unless you are telling investigators that you need your lawyer present. Denying anything they say or lying could open you up to obstruction charges.
• Document What You Remember: If you've already spoken with agents, sit down and try to remember what you said. This information will be invaluable to your attorney as he or she works to develop your defense.

Preserve All Evidence and Avoid Destruction of Documents

Immediately implement a litigation hold and preserve all potentially relevant documents and communications. Save all emails, text messages, documents, and voicemails that may relate to the investigation. If you delete anything, it could be perceived as obstruction of justice, which can lead to new federal criminal charges. Your defense attorney will help decide which records are important and how to present them during the legal process or in federal court.

How We Fight ICO Fraud Charges

Challenge Sufficiency of Evidence

Challenging the sufficiency of evidence is an important defense strategy, as the government has a high burden in criminal cases of proving guilt beyond a reasonable doubt, and there can be no ICO fraud if a key element of the offense is lacking—if the prosecution does not have all the evidence needed to prove every element of the offense, you cannot be convicted.

Lack of Intent to Defraud

Intent to defraud requires the prosecution to prove that false statements were made with the purpose to deceive, and not for some other purpose. If it cannot be proven that you acted knowingly or with the specific intent to defraud someone else, you cannot be convicted of wire fraud.

Specific Intent Defense Strategies:

• Demonstrate you believed your statements were true and had no intent to deceive, or show you were unaware that any statements were false or that fraud was happening.
• Present evidence that you had mistaken facts—for example, if you communicated information you believed to be true based on information you had been given, but it turned out to be false, you were not intentionally communicating false information.
• Argue any misrepresentations were due to negligence, not intent.

Good Faith Defense

The good faith defense challenges the government's evidence of intent—if you attempted in good faith to comply with the law but still ended up submitting false or fraudulent claims, your lack of intent is a defense to criminal prosecution. This involves presenting evidence that the defendant took reasonable steps to comply with securities laws and acted in good faith.

Wire Communication Defense

If wires weren't used to further the fraud, the charge may fail. Communication must be sent "for the purpose of executing" the alleged underlying fraud—if communications were sent after the alleged fraud was completed, after an alleged conspiracy fell apart, or otherwise were not sent for the purposes of committing fraud, then they will not support charges under 18 U.S.C. Section 1343.

Expert Witness Utilization

Expert testimony is a powerful tool in defending against federal wire fraud charges—by providing clarity, challenging the prosecution, and supporting the defense's case, experts can make a significant difference in the outcome of a case.

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.

Conspiracy Charges:

Conspiracy to commit fraud carries the same penalties as those prescribed for the underlying offense 18 U.S.C. § 1349 

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 Amendment 653

Key Enhancement Factors:

• Loss Amount: The primary driver of sentence length under § 2B1.1
• 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 
• Sophisticated Means: Additional enhancements for complex schemes
• Leadership Role: Enhancements for organizers and leaders
• Abuse of Trust: Additional penalties for defendants in positions of trust

Forfeiture and Asset Recovery

Civil and Criminal Forfeiture (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:

1. No further criminal activity
2. Cooperation with probation officers
3. Financial disclosure and monitoring
4. Computer and internet usage restrictions
5. Restitution payments

Special Conditions for Cryptocurrency Cases:

1. Prohibition on cryptocurrency trading or transactions
2. Asset monitoring and reporting requirements
3. Technology usage restrictions
4. Financial account monitoring

Examples and Related Cases

With the increase in “retail trading,” fintech, and options trading, particularly during COVID and in the post-COVID era, our firm has represented individuals charged or being investigated for ICO fraud. 

In one particular matter, we represented an individual who was alleged to have been part of a “pump and dump” conspiracy in connection to the Trump  / “DWAC” SPAC merger. Indeed, our client was merely part of a group-chat focused on day-trading and options trading during the early days of COVID.

However, one member of the group-chat was alleged to have worked directly with an individual who had material, non-public information as it pertained to DWAC. While only this one individual was alleged to have traded on insider information, dozens of others, including our client, received federal grand jury subpoenas.

We were ultimately able to narrow the subpoena and address the matter with federal prosecutors, convincing them that our client was never privy to the fact that the information being shared fell within “insider trading.” Rather, a forensic download and defense investigation showed that our client had only made these trades once such information was being publicly shared on forums such as reddit and Twitter. As such, our client avoided a criminal prosecution.  

Your Defense Begins Now

Allegations involving ICO fraud, pump-and-dump schemes, or crypto market manipulation can lead to serious criminal charges in New York and federal court.

Whether you're under investigation, facing formal charges, or need legal guidance, an experienced legal counsel can make all the difference. We understand the complexities of crypto-related cases and are prepared to protect your rights at every stage. Contact The Law Offices of Jason Goldman today.