SEC Crypto Criminal Enforcement Will Keep Rising Following HyperFund Ponzi Scheme Charges
Partner and co-chair of Herrick's Securities Litigation and Enforcement Group, Arthur G. Jakoby, spoke with CCN about the Department of Justice ("DOJ") and the Securities and Exchange Commission ("SEC") alleging a billion-dollar cryptocurrency-driven Ponzi Scheme with criminal indictments against several individuals associated with HyperFund, and how this will likely be the first of many SEC interventions and criminal prosecutions in 2024 within the crypto space.
The article noted that the DOJ and SEC have charged HyperFund with defrauding investors by promising significant returns from non-existent cryptocurrency mining ventures. Arthur highlighted the pervasive belief among many individuals that investing in the cryptocurrency frenzy can fast-track them to financial success.
Arthur said that this mindset renders them susceptible to fraudulent schemes. The sheer scale of the $1.7 billion fraud is a stark reminder of the risks involved. Arthur anticipates a significant increase in both SEC interventions and criminal prosecutions related to cryptocurrency dealings in the upcoming year, marking a concerted effort to curb such fraudulent activities in 2024.
“The real story here is that there are so many people out there who believe that investing in the cryptocurrency craze will lead to financial nirvana, making them easy marks for fraudsters. The magnitude of this $1.7 billion fraud is stunning.”
Arthur elaborated further, saying that from a securities perspective, this case represents classic securities fraud. It, according to him, involves an investment of money by investors, who had a reasonable expectation of profits. These profits were purportedly derived from passive daily returns ranging from 0.5% to 1% and from the activities of HyperFund’s crypto asset mining operations.
He added that given the criminal charges in play, it’s improbable that the defendants will contest the SEC’s classification of this operation as a Ponzi scheme. Their focus is more likely to shift towards addressing the criminal charges. They might either present any possible defenses they have or aim to negotiate a settlement in the criminal proceedings.
Arthur asserted, “Since there are criminal charges here, it is unlikely that the defendants will fight the SEC on this Ponzi scheme and will focus on fighting the criminal charges—to the extent that there is any defense—or settling the criminal charges.”