U.S. Trader Fined $1.1 Million and Sentenced to 15 Months for Commiting Bitcoin Fraud

According to a report by Bloomberg, published November 13, 2018, U.S. resident named Joseph Kim has been fined $1.1 million and sentenced to 15 months in prison for orchestrating fraudulent schemes related to bitcoin (BTC), and litecoin (LTC), thus duping his employer and several other customers of their money.

Illegal Transfers and Fund Misappropriation
In 2017, the U.S. Commodity Futures Trading Commission (CFTC) found out that Kim had transferred $601,000 worth of bitcoin and litecoin from his employer’s cryptocurrency exchange wallet to his wallet.

The misappropriation of funds was done sometime between September and November 2017, when Kim used to work for a Chicago based trading firm.
Later, Kim was interrogated by the firm’s officials regarding the illegal transfers. However, at the time, Kim falsely claimed that he moved the digital currencies because of the platform’s security concerns. Subsequently, the company discovered the illegal transfer of funds in November 2017, after which Kim was fired.

In an attempt to better his sorry situation, Kim started to solicit funds from individual investors stating that he had left his previous job to start his trading venture. Kim boasted about his “low-risk virtual currency arbitrage strategy,” and was able to hit the right chord with some investors.

Finally, Kim was successful in accumulating close to $45,000 from five investors who he had tricked into the fraudulent scheme. The investors entrusted Kim with their money for good investments in the cryptocurrency market.
Much to Kim’s misfortune, he lost all $45,000 as a result of poor trading decisions. To hide the losses, Kim even managed to forge the account statements sent periodically to investors to show them profits.

However, luck ran out for Kim when he got slapped with $1,146,000 fine by the U.S. CFTC. Also, the CFTC also permanently banned Kim from participating in crypto trading, and from soliciting funds.

Regarding the dramatic turn of events leading to Kim’s arrest, director of enforcement at the CFTC, James McDonald stated:

“Today’s Order stands as yet another in the string of cases showing the CFTC’s commitment to actively police the virtual currency markets and protect the public interest.”

U.S. SEC Having a Busy Time
Keeping a vigilant eye over the players in the crypto industry has been a tough cookie to crack for regulatory bodies the world over.
BTCManager reported on November 8, 2018, how the U.S. SEC penalized EtherDelta founder for failing to register cryptocurrency exchange despite offering the buying and selling of security-like assets on a secondary market.


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Author: Aisshwarya Tiwari
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North Korea is Using Cryptocurrency to Evade U.S. Sanctions: Experts

Two Washington-based financial experts say that North Korea is increasingly using cryptocurrency to evade U.S. Sanctions.

According to Lourdes Miranda, a financial crimes investigator specialized in intelligence collection and analysis, and Ross Delston, an expert witness who specializes in anti-money laundering and combating the financing of terrorism, Pyongyang is creating its own cryptocurrency and is likely also using popular cryptocurrencies like bitcoin.

Cryptocurrencies are being preferred by international criminals and for terrorist financing, and the country of North Korea is no exception, the duo said in a written statement to Asia Times. They said:

“Crypto-currencies have the added advantage to the DPRK of giving them more ways to circumvent US sanctions.”

They added, “They can do so by using multiple international exchangers, mixing and shifting services – mirroring the money laundering cycle – to exploit international financial institutions that have correspondent banking relationships with the United States.”

According to Priscilla Moriuchi, a former NSA cybersecurity official, North Korea is earning around $15 million to $200 million by mining and selling cryptocurrencies. Speaking to The Hill earlier this year, Moriuchi said:

“North Korea has pursued other avenues for obtaining cryptocurrencies as well, including mining of both bitcoin and Monero, ransom paid in bitcoin from the global WannaCry attack in May and even commissioning a cryptocurrency class for North Korean students in November.”

Source: Shutterstock

Now, per the Asia Times report, Miranda and Delston stated that North Korea could use the most popular cryptocurrencies like bitcoin, or the country’s government could create its own.

“Having their own crypto-currency would also facilitate their ability to open online accounts under the guise of a non-adversarial nation using anonymous communication to conceal the user’s locations and usage on the internet,” they stated.

The researchers also said that the country would create its own blockchain in order to alter their public record of transactions to show that these transactions are coming from legitimate sources. Further, the country would create its own cryptocurrency wallet services.

Explaining about the making of successful exchange of crypto into fiat currencies — all the while undetected — the pair said that North Korean-mined cryptocurrencies would be laundered onto European exchanges, enabling the rogue nation to obtain USD “with none of those pesky sanctions attached.” The investigators are not sure about the current scale of North Korea’s crypto-currency operation.

As CCN reported, America’s rivals including Iran, North Korea, Russia, and Venezuela have recently turned to cryptocurrencies in order to counter economic pressure from the U.S. and its allies.

For example, the petro, an oil-backed cryptocurrency announced by Venezuela’s president, Nicolas Maduro, was banned in the United States. Earlier in May, President Trump issued an executive order banning American citizens from buying, trading, or dealing with the petro cryptocurrency “in light of recent actions taken by the Maduro regime to attempt to circumvent U.S. sanctions by issuing a digital currency.”

Also, Iran has recently revealed the details of its national cryptocurrency in response to U.S.-led economic sanctions. Iran’s future cryptocurrency is allegedly backed by the fiat Rial and is developed on the Linux Foundation-led open-source Hyperledger Fabric technology, the report said.


Source
Author: Sujha Sundararajan 
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U.S. Judge Rules That ICOs are Covered by Securities Laws

A U.S. District Judge in Brooklyn has delivered a landmark judgement with far-reaching implications for the initial coin offering (ICO) market. Judge Raymond Dearie of the U.S. District Court Eastern District of New York today ruled that U.S. securities laws cover ICO token sales.

The ruling came in a case against a fraudulent ICO promoter Maksim Zaslavskiy, whom prosecutors are looking to bring up on fraud charges for defrauding investors of more than $300,000 from a scam ICO called REcoin.

REcoin ICO Scam

In Sept. 2017, CCN reported that the SEC charged Zaslavskiy and two of his companies with defrauding investors through a number of ICO scams including REcoin. REcoin was marketed to investors as being backed by real estate and diamond assets which in actual fact did not exist.

In a pioneering ruling, Judge Dearie refused to dismiss the case against Zaslavskiy, whose lawyers earlier pled for dismissal on the basis that the ICOs in question were currencies and not securities, placing them outside the jurisdiction of the SEC Act.

An excerpt from today’s hearing file reads:

“He [Zaslavskiy] argues that the securities laws are  unconstitutionality vague as applied. The Government, meanwhile, asserts that the investments made in REcoin and Diamond were “investment contracts,” and thus “securities,” […] and that these laws are not unconstitutionally vague.”

Judge Dearie’s ruling on this matter was that an ICO is indeed a security for the purposes of federal criminal law, which is what prosecutors have argued since last year.

Implications of Dearie’s Ruling

The SEC claims the REcoin ICO scammed investors out of $300,000.

Dearie has become the first judge to deliver a ruling that places ICOs firmly within the jurisdiction of securities regulators, and this could potentially have important implications for the ICO market by creating a precedent for future cases.

While the CFTC has had some successes tackling fraudulent crypto offerings within its space, the SEC — which has long said that it has jurisdiction over most ICOs — had not yet established this authority in court.

An excerpt from Judge Dearie’s ruling reads:

“Zaslavskiy’s contrary characterizations are plainly insufficient to by pass regulatory and criminal enforcement of the securities laws. Because the indictment is sufficient under the Constitution and the Federal Rules of Criminal Procedure, and because the law under which Zaslavskiy is charged is not unconstitutionally vague as applied, Zaslavskiy’s motion is denied. The case will proceed to trial.”

While the ruling comes as a boost for prosecutors, the it is by no means a final word on the matter. In his comments, Judge Dearie noted that the ultimate decision rests with a jury and that Zaslavskiy’s lawyers can in fact still present the argument contesting the jurisdiction of securities laws to the jury.


Source
Author: David Hundeyin
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US Congressman Calls for Ban on Crypto Buying and Mining

A U.S. lawmaker has called for a blanket ban on cryptocurrency buying.

Congressman Brad Sherman is no stranger to controversial statements on the subject – back in March he called cryptocurrencies “a crock” – and during the Wednesday hearing of a subcommittee for the House of Representatives Financial Services Committee, he went so far as to advocate keeping Americans out of the market entirely.



“We should prohibit U.S. persons from buying or mining cryptocurrencies,” the California Democrat declared. He added that, beyond cryptocurrencies being potentially used as a form of money in the future, it can currently be used by tax evaders and rogue states seeking to bypass U.S. sanctions.

One of the panelists, Norbert Michel, director for the Center for Data Analysis at the Heritage Foundation, pushed back against the idea that criminal use should define cryptocurrencies as a whole.

Michel told the subcommittee:

“Yes it is true that criminals have used bitcoin, but it’s also true that criminals have used airplanes, computers and automobiles. We shouldn’t criminalize any of those instruments simply because criminals used them.”

“Those components I believe are the main barriers to widespread adoption in the U.S,” he added.

No love for CBDCs

Though much of the hearing revolved around general monetary policy and history, the crypto-specific portions revealed a general opposition to the idea of a central bank digital currency (CBDC).

To quickly recap: a number of central banks around the world have been investigating the idea of using some of the technology concepts behind bitcoin and other cryptocurrencies as part of new, wholly digital money systems. The idea is that the tech can boost transparency and efficiency.

But some of those looking into the subject have warned that it could amplify the risk of bank runs, and several institutions have sworn off the idea entirely following their research.

Alex Pollock, a senior fellow at the R Street Institute, blasted the concept during Wednesday’s hearing, declaring it “a terrible idea – one of the worst financial ideas of recent times.”

Other committee members couldn’t help but agree that the idea, at the very least, raised more fundamental questions about how blockchain and cryptocurrencies actually work.

Congressman Bill Foster asked about blockchain immutability, saying “the promise of blockchain is a non-falsifiable ledger … [what] remains an unsolved problem in the digital world is how do you authenticate yourself?”

Payments boon

On a more positive note, Dr. Eswar Prasad, senior professor of Trade Policy at Cornell University, argued that the existence of cryptocurrencies had the potential to impact the financial services system, particularly the payments system, in positive ways.

According to Prasad, cryptocurrencies could “make transactions much easier … and bring down the cost,” but the benefits are limited at the moment.

Michel himself noted:

“It is certainly difficult to imagine a cryptocurrency replacing the U.S. dollar as long as the Federal Reserve acts as a moderately good steward of the national currency, but it is for this very reason that Congress should eliminate barriers that impede people from using their preferred medium of exchange.”

Ultimately, the hearing was cut short in order to make way for a House vote.

However, just prior to dispersing the attendees, chairman Andy Barr noted that cryptocurrencies will “continue to have a greater and greater impact on our financial system,” making it a topic the committee would likely have to “revisit” once again.


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Author Christine Kim 
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