Cryptocurrency

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On January 6, South Dakota Attorney General (AG) Marty Jackley announced a package of proposed legislation to modernize various aspects of the state’s criminal statutes. Among the proposals is a bill that would expressly authorize law enforcement to seize cryptocurrency as part of a criminal investigation. The measure reflects a growing concern that digital currency occupies a central role in much criminal activity and that legislation may be necessary in some jurisdictions to address those concerns.

The Federal Trade Commission (FTC) announced a proposed consent order with Illusory Systems Inc. (Illusory), a Utah-based blockchain infrastructure company that operates the Nomad Token Bridge. The settlement resolves the FTC’s allegations that Illusory failed to live up to its stated data security commitments, leading to a 2022 cyberattack in which hackers stole approximately $186 million in crypto assets from platform users. Under the proposed order, Illusory must return to consumers any recovered funds and implement enhanced information security measures.

On October 20, a coalition of 21 state attorneys general (AG), led by Iowa AG Brenna Bird, submitted a letter to Securities and Exchange Commission (SEC) Commissioner Hester M. Peirce in response to her February statement titled “There Must Be Some Way Out of Here.” Peirce’s statement invited public input to assist the SEC’s Crypto Task Force with clarifying regulatory approaches for digital assets. The letter from the AGs addressed the pivotal question of establishing a regulatory structure that balances clarity with the protection of state authority and consumer interests.

On June 25, the California Department of Financial Protection and Innovation (DFPI) entered a consent order with Coinme, Inc., a cryptocurrency “ATM” operator, for noncompliance with the California’s Consumer Financial Protection Law (CCFPL) and Digital Financial Assets Law (DFAL). The consent order marks a significant milestone in California’s regulatory efforts because it represents the conclusion of the agency’s first enforcement action under the DFAL.

On March 24, cryptocurrency investment firm Galaxy Digital Holdings (Galaxy) entered into an assurance of discontinuance (AOD) with New York Attorney General (AG) Letitia James to resolve allegations that Galaxy engaged in misrepresentations when it promoted the failed algorithmic cryptocurrency Luna from 2020 to 2022.

Recent actions by the Pennsylvania and Iowa state attorneys general (AG) suggest increasing regulatory scrutiny of bitcoin transaction machines (BTMs) in connection with the role they allegedly play in facilitating scams. In Pennsylvania, AG David Sunday issued a consumer alert, warning Pennsylvanians that scammers are using BTMs to gain access to their money. In Iowa, AG Brenna Bird brought two lawsuits against Bitcoin Depot and CoinFlip, Iowa’s two largest BTM operators, over alleged collection of illegal fees and failures that allowed Iowans to send millions of dollars to scammers through their kiosks.

New York Attorney General Letitia James led a bipartisan multistate coalition to reach a $24 million settlement with cryptocurrency company Nexo for allegedly offering and selling unregistered securities and commodities. As noted in AG James’s press release, each of the 53 U.S. jurisdictional North American Securities Administration Association (NASAA) members will be eligible to claim a settlement of more than $424,000. In a parallel action, Nexo agreed to pay $45 million in penalties to the U.S. Securities and Exchange Commission (SEC).