Federal Investigators Probe Crypto Scams and Ties to Russian Meddling

Cryptocurrency and the blockchain technology that supports it is among the most groundbreaking innovations of the 21st century. Crypto has broad potential use well outside of financial services, and soon we will be seeing blockchain-powered applications popping up all over the place. But before cryptocurrency can be truly embraced by the mainstream, something needs to be done about its illicit uses.

New Study Finds Most ICOs Fraudulent

Last year hosted hundreds of new Initial Coin Offerings (“ICOs”) that attracted the attention of millions of new cryptocurrency investors. However, a new study released by a private consulting firm identified more than 80% of the ICOs launched in 2017 as scams. This type of fraud represents a shocking proportion of the overall market, and it’s led to major reputational issues across cryptocurrency companies. However, this bad rap may be undeserved.

Despite the abundance of fraudulent ICOs released in 2017, relatively few investors were duped into shelling out hard-earned cash. In fact, the same study that called over 4/5ths of all ICOs launched last year scams recognized that these worthless coins only attracted a minority of total investment. By volume, over 70% of ICO funding to date has gone towards high-quality cryptocurrency projects. This includes several enterprises that are working hard to build blockchain-powered applications that may one day change the world.

White House Task Force Assigned to Investigate Cryptocurrency Fraud

Fraud and scams are nothing new in the world of cryptocurrencies. Most investors have taken this unfortunate aspect of the investment environment as par for the course when putting money into a famously under-regulated and volatile market. However, as cryptocurrency becomes a more mainstream investment, regulators are taking allegations of fraud more seriously.

Just this week, President Donald Trump assigned an official task force to investigate fraud in the cryptocurrency industry and related scams. The task force, created by executive order on July 12, includes law enforcement heavy-hitters like FBI Director Christopher Wray and Deputy Attorney General of the United States Rob Rosenstein. Altogether, this goes to show how serious the feds are about ramping up enforcement against individuals who use cryptocurrency for illicit gains. And, given that cryptocurrency has just recently been linked to the Russia probe, it’s possible that we’re only seeing the tip of the law enforcement ice burg.

Mueller Investigation Ties Cryptocurrency to Russian Election Interference

The U.S. Department of Justice has been investigating Russian interference with the 2016 U.S. presidential election for well over a year now. The investigation, led by federal law enforcement veteran Robert Mueller, has yet to charge any U.S. citizens in the scandal. However, just one day after President Trump established his cryptocurrency fraud taskforce, law enforcement officials released an indictment charging 12 Russian nationals with federal crimes allegedly carried out as part of the scheme.

In the indictment, Mueller’s team alleged that Russian officials used cryptocurrencies like Bitcoin and others to fund hacks into computers associated with the Democratic Party and former presidential candidate Hillary Clinton.

According to the FBI’s cyber crime investigators, Russian officials used cryptocurrencies to buy accounts and servers used in a spearphishing campaign. This campaign resulted in thousands of emails and documents being stolen from the Democratic Party and its key officials. These documents were released by Russian nationals claiming to be “American hactivists” trying to protect U.S. democratic integrity. Unfortunately, however, nothing could be further from the truth. Instead, the Russians were running yet another cryptocurrency scam – perhaps the best we’ve seen yet – with the ultimate goal of feeding misinformation to the American people.

Law enforcement continues to hone in on cryptocurrency fraud and schemes, but we still aren’t totally sure how far down the rabbit hole we will go. The Department of Justice is becoming increasingly involved in cryptocurrency-related investigations, and this type of intervention is meant to make cryptocurrency markets a safer investment environment. However, at least for the time being, illicit uses of cryptocurrencies remain to be a major challenge to their long-term viability.