Ratings Agency Scores Stablecoins; NFT Collections Launch; IOSCO Addresses DeFi; SEC, DOJ and Interpol Bring Crypto Actions; Hacks and Scams Continue | BakerHostetler

On Dec. 13, the U.S. Government Accountability Office (GAO) published a report titled “Economic Sanctions: Agency Efforts Help Mitigate Some of the Risks Posed by Digital Assets.” According to a GAO press release, the report discusses (1) the risks that digital assets pose to U.S. agencies’ ability to implement and enforce U.S. sanctions and factors that may mitigate those risks and (2) the actions U.S. agencies have taken to address the risks that digital assets present with regard to implementing and enforcing U.S. sanctions.

On Dec. 19, a Big Four consulting firm published “Global Crypto Regulation Report 2023.” The recent final report “provides an overview of the crypto regulation landscape … offers insights into how the regulatory frameworks are developing across the world and seeks to identify how this may impact relevant industry participants and virtual service providers within the financial services sector.” Among other things, the report provides summaries of the crypto regulatory environment in the following jurisdictions: Australia, Austria, Bahamas, Canada, Denmark, Estonia, France, Germany, Gibraltar, Hong Kong, Hungary, India, Italy, Japan, Luxembourg, Mauritius, New Zealand, Singapore, South Africa, Switzerland, Taiwan, Turkey, United Arab Emirates, United Kingdom and United States.

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SEC, DOJ and Interpol Continue Crypto Enforcement Actions

By Joanna F. Wasick

On Dec. 22, the Securities and Exchange Commission (SEC) announced that BarnBridge DAO and its two founders, Tyler Ward and Troy Murray, will pay more than $1.7 million to settle charges that (1) they failed to register BarnBridge’s offer and sale of structured crypto asset securities known as SMART Yield bonds and (2) they operated BarnBridge’s SMART Yield pools as unregistered investment companies. According to an SEC press release, the respondents compared the SMART Yield bonds to asset-backed securities and marketed them broadly to the public, claiming that SMART Yield bonds would “mirror the safety and security of highly-rated debt instruments offered by traditional finance … while still providing the outsized return.” SMART Yield also allegedly pooled crypto assets deposited by the investors and used those assets to generate fixed or variable returns to pay investors.

In mid-December, the U.S. Department of Justice (DOJ) announced the unsealing of a seven-count indictment charging four individuals for their roles in a scheme to launder the proceeds of cryptocurrency investment scams and other fraudulent schemes in which victims lost more than $80 million. According to a DOJ press release, the defendants conspired to open shell companies and bank accounts to launder the proceeds of cryptocurrency investment scams known as “pig butchering,” wherein scammers meet victims through dating services, social media or unsolicited calls/messages; gain their victims’ trust and establish a relationship with them; and eventually introduce the idea of making a business investment using crypto. The DOJ charged the defendants with conspiracy to commit money laundering, concealment money laundering and international money laundering.

Also in mid-December, Operation HAECHI IV, a transcontinental police operation against online cyber-enabled scams, reportedly concluded with almost 3,500 arrests and seizures of US$300 million worth of assets – including US$101 million in virtual assets – across 34 countries. During the operation, investigators worked together to detect online fraud and freeze associated bank and virtual asset service provider accounts using Interpol’s Global Rapid Intervention of Payments, a stop-payment mechanism that helps countries work together to block criminal proceeds.

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Crypto Hacks and Scams Result in Losses of $81M, $59M and $2.7M

By Keith R. Murphy

A cross-chain platform was hacked for $81 million following exploitation of the platform’s cross-chain bridge, according to a recent report. The hacker reportedly funded a wallet using Tornado Cash, a sanctioned cryptocurrency tumbler, and then attacked the platform’s Ethereum vault. The report further notes that the stolen funds, which were sent to various Ethereum wallets, appear to be unmoved.

In another incident, swindlers utilized the wallet-draining service MS Drainer to steal $59 million of cryptocurrency in the past nine months, based on a recent report. The thefts allegedly involved the use of ads on a well-known search engine and targeted victims with fake versions of crypto sites. The report notes that a blockchain security platform investigating the scam determined that the swindlers utilized web redirects, in addition to regional targeting and page-switching tactics, to bypass ad audits on the search engine.

In a third incident, a decentralized exchange (DEX) aggregator experienced a theft of $2.7 million in cryptocurrency assets as a result of an exploit, possibly from the leak of a private key, according to a report. The report further notes that the DEX possibly was exploited by a hacker who upgraded a deprecated contract with token approvals and that the hacker is tied to other exploits.

According to a recent report discussing findings from researchers at security app De.Fi, cryptocurrency users lost approximately $2 billion to various hacks and scams in 2023. This figure reportedly represents half the amount that was lost in the year prior. The researchers reportedly attribute the reduction largely to the implementation of improved security protocols, greater community awareness and decreased market activity.

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