On October 30, 2017, the U.S. Securities and Exchange Commission (“SEC”) filed a complaint in federal court against a day trader for allegedly committing fraud and market manipulation during which the trader utilized a digital currency exchange in a supposed attempt to cover his tracks. The SEC claims that defendant’s associate obtained unauthorized access to other people’s brokerage accounts and caused them to enter unauthorized trade orders at artificial prices. Many of these orders then executed, directly or indirectly, against the defendant’s orders. The defendant then allegedly transferred a share of the profits to his associate. Notably, the defendant transferred the proceeds, which were denominated in U.S. dollars, to a digital currency company that converted the dollars to bitcoin and transmitted them to the defendant’s associate.
While the connection to cryptocurrency seems mostly incidental here, this is the type of press that sullies the reputation of digital assets. In this case, the defendant could have simply transferred dollars offshore or tried other methods of obscuring the transfers without comment, but the connection to bitcoin will likely give this case more press than it deserves. The digital currency industry continues to encourage discussion on self-regulation efforts intended to address perceived risks and governance issues raised by cases such as this and combat reputational concerns.
The SEC’s complaint is available here.