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April 7, 2020

  • Paper Money Had a Good Run  But the Future is Digital 
  • Crypto Ponzi Victims File Class Action Lawsuit Against Wells Fargo 
  • SEC Freezes Assets of Crypto Scam Linked to Former U.S. State Senator 
  • MFSA Warns Public of False Registration Claims by Two Crypto Exchanges 

CipherTrace CEO Predicts COVID-19 Will Hasten the Rise of Digital Currencies 

A version of the US House stimulus bill to combat the economic impacts of the coronavirus pandemic included a “digital dollar” concept. The use of a digital currency could accelerate and simplify government distribution of direct financial stimulus payments to the public

CipherTrace CEO Dave Jevans told Finance Magnates why developing a Central Bank Digital Currency (CBDC) would be a forward-thinking move on the part of the United States, not just for addressing the immediate needs created by the coronavirus, but in the long-term:  

“The days of handing paper dollar bills and metal coins to your grocer or coffee store barista are coming to a close. If the need to ease economic impacts from the coronavirus crisis inspires the development of a digital dollar, the US government will be that much more equipped to compete with People’s Bank of China in the Central Bank Digital Currency (CBDC) race. That said, China is already miles ahead of the rest of the world in terms of developing its digital yuan. This week alone, five patents for China’s CBDC were recently publicized that covered, among other aspects, transaction recording, anonymous trading support and assistance in supervising and dealing with illegal accounts. China is no stranger to surveilling its own citizens, but if the digital yuan is issued via China’s extensive, sixty-country Belt and Road initiative, the digital yuan could become a global currency to rival the US dollar overnight. The inevitable digitization of global financial systems unfortunately means that criminals are finding new ways of laundering money outside of cash. It is therefore paramount for any country implementing a digital currency to prioritize AML compliance and security while maintaining privacy for its users.” 

Why it matters: Due to the accessibility and efficiency enabled by transacting in digital currencies, it’s only a matter of time before most major central banks deploy digital currencies. It’s important that these currencies include both adequate controls to prevent money laundering and strong privacy controls for individuals. 

On a related note, many of the 5,275 bitcoin ATMs distributed across the United States could be used to immediately put cash in the hands of consumers.

SEC Calls Out Meta 1 Coin as a Security Fraud 

On March 16, the SEC froze the assets of Meta 1 Coin, an alleged crypto scam supported by former Republican Senator for the state of Washington, Dave Schmidt. Meta 1 claimed to be backed by art and gold assets and, as of April 2018, had raised $4.3 million with the promise of a 224,923% return to investors without proof of legitimate tokens. The SEC fined the parties involved in lieu of jail time and labeled the project as an “ongoing securities fraud.” Meta 1’s website and social media pages are still currently active.  

MFSA Issues Public Warnings for Two Unregistered Crypto Exchanges  

On March 25th, The Malta Financial Services Authority (MFSA) issued public warnings that crypto exchanges COINMALEX and Crypto Foxtrades were falsely claiming to be licensed and regulated under the MFSA. MFSA went on to suggest that COINMALEX was a “scheme of dubious nature” and any involvement could lead to loss of money.  

Though Malta is known for welcoming cryptocurrency projects with open arms, projects must follow the nation’s designated guidelines and regulations in order to legally operate there.   

Why it matters: Advisories such as these serve as reminders that regulations exist to protect investors, users, and financial institutions from fraud and association with criminal activity, and are not to be taken lightly. 

Q3 Crypto Ponzi Victims File Class Action Lawsuit Against Wells Fargo 

In early February, the SEC charged an Ohio man, Michael Ackerman, for allegedly defrauding investors of over $35 million in a cryptocurrency trading scheme—Q3 Trading—along with two unnamed founding partnersThe SEC alleged that the three falsified screenshots of their trading account to create the false impression that it held as much as $310 million in assets when it actually contained no more than $6 million at any given time. Investors’ funds were transferred directly into the fraudsters’ personal bank accounts where the money was spent lavishly on luxury properties and vehicles, among other things. 

Earlier this week, a new class-action lawsuit revealed that one of Ackerman’s partnersJames Seijaspromoted himself as an investor working on behalf of Wells Fargo Advisors. The suit accused Wells Fargo of failing to inquire into Seijas’s activities. The plaintiffs claimed that Wells Fargo failed to make the appropriate inquiries into Seijas as required by the company’s policy mandating that employees regularly report the work they doutside the scope of their employment with Wells FargoThe lawsuit emphasized that because Seijas promoted himself as an investor working on behalf of Wells Fargo, “the acts and omissions described herein were committed in his capacity as an agent for Wells Fargo Advisors.” The lawsuit also named Wells Fargo Advisors in counts of unjust enrichment, negligence and fraud. 

Why it matters: As cryptocurrency becomes more pervasive, traditional financial institutions must become more vigilant in how cryptocurrency affects their institutions. 

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