Cryptocurrency has transformed how people invest, transact, and think about money. It has also created a minefield of legal risks that most people don’t see coming until it’s too late.
Federal prosecutors and regulatory agencies have made cryptocurrency enforcement a top priority. The rules aren’t always clear, and regulators often apply decades-old financial laws to brand-new technologies in unexpected ways. Our friends at Stechschulte Nell discuss how cryptocurrency cases require attorneys who understand both blockchain technology and complex financial regulations. A knowledgeable crypto defense lawyer can mean the difference between a dismissed case and years in federal prison.
The Regulatory Confusion Problem
Unlike traditional securities or banking, cryptocurrency operates in a regulatory gray area. Different agencies claim jurisdiction over different aspects of crypto. The SEC treats many tokens as securities. The CFTC considers Bitcoin and Ethereum commodities. FinCEN applies money laundering rules. The IRS wants its share of gains.
This fragmented oversight creates genuine confusion about what’s legal. People get charged with crimes for activities they genuinely believed were permissible. According to the Department of Justice, federal prosecutors have established specialized units focused exclusively on cryptocurrency-related crimes.
When Legal Help Becomes Necessary
1. You Receive A Grand Jury Subpoena Or Target Letter
Federal investigations often begin quietly. You might receive a subpoena for documents or testimony before a grand jury. Sometimes prosecutors send target letters informing you that you’re under investigation.
These communications are serious. Anything you say or provide can be used against you. Many people make their situations worse by trying to explain themselves to investigators without counsel present.
We advise clients to exercise their rights immediately upon receiving any communication from federal investigators. You are not required to speak with agents or prosecutors without representation, and you should not do so.
2. Your Exchange Account Gets Frozen
Cryptocurrency exchanges cooperate extensively with law enforcement. They freeze accounts, provide transaction records, and report suspicious activity. If your account is suddenly inaccessible, it might indicate an ongoing investigation.
Account freezes can also result from compliance actions unrelated to criminal investigations. Either way, you need legal guidance to understand why the freeze occurred and what steps to take next.
3. You’re Accused Of Operating An Unlicensed Exchange
Federal and state laws require money transmitter licenses for businesses that exchange cryptocurrency for fiat currency. Many people don’t realize their activities qualify as money transmission.
Charges for operating unlicensed exchanges carry serious penalties. Prosecutors often combine these charges with money laundering allegations, especially if the exchange was used by other people engaged in illegal activity. The law doesn’t always require that you knew your customers were involved in crimes.
4. You Face Tax Evasion Or Fraud Charges
The IRS treats cryptocurrency as property for tax purposes. Every trade, every purchase with crypto, and every conversion creates a potential taxable event. Many early cryptocurrency adopters didn’t report these transactions because they didn’t understand the requirements.
Now the IRS is catching up. The agency obtains user records from exchanges and uses blockchain analysis to track transactions. Common charges include:
- Failure to report cryptocurrency gains
- Filing false tax returns
- Structuring transactions to avoid reporting requirements
- Using cryptocurrency to hide income or assets
Tax crimes can result in substantial fines, back taxes with penalties and interest, and imprisonment. We work with forensic accountants to analyze blockchain transactions and develop strategies to resolve tax issues before they become criminal matters.
5. You’re Investigated For Money Laundering Or Fraud
Money laundering charges often accompany other cryptocurrency offenses. Federal law makes it illegal to conduct financial transactions with proceeds of illegal activity. Prosecutors sometimes charge money laundering even when the underlying illegal activity wasn’t actually illegal or when you had no knowledge of it.
Cryptocurrency fraud cases range from Ponzi schemes and pump-and-dump operations to ICO fraud and rug pulls. If you promoted a token, operated a trading platform, or advised others on cryptocurrency investments, you could face fraud charges if investors lost money.
The Blockchain Evidence Challenge
Cryptocurrency cases involve unique evidentiary issues. Blockchain records are permanent and transparent, but they’re also pseudonymous. Prosecutors use blockchain analysis firms to link wallet addresses to real people. This evidence isn’t always as clear as prosecutors claim.
We work with blockchain forensics professionals who can challenge the government’s technical analysis and provide alternative explanations for transaction patterns. Sometimes the same evidence prosecutors use to build their case can be used to show innocent explanations for your activities.
Building Your Defense Strategy
Cryptocurrency cases require attorneys who understand the technology, the applicable regulations, and federal criminal procedure. We represent clients facing investigation or charges related to cryptocurrency activities, from initial contact with law enforcement through trial if necessary. Reach out to discuss your situation and protect your rights before making statements that could be used against you.