Federal Criminal Defense Lawyers address additional recent crypto decisions. We provide you with summaries of two additional crypto rulings:
United States v. Sohrab Sharma, 2023 U.S. Dist. LEXIS 16389 (S.D.N.Y. Jan. 31, 2023):
Summary: The defendant was charged with securities fraud, wire fraud, and conspiracy to commit those offenses in connection with his role as co-founder of Centra Tech, Inc. (“Centra”), which conducted an allegedly fraudulent initial coin offering of digital tokens. The court denied the defendants’ motion to dismiss the Indictment, finding that the digital tokens offered qualified as “securities” subject to federal securities laws. The court also rejected the defendants’ vagueness challenge to the wire fraud counts, finding that the Indictment sufficiently alleged a scheme to defraud investors. Thus, the securities fraud, wire fraud, and conspiracy charges against the defendant were allowed to proceed.
Key Legal Holdings: That the claimants’ judgment liens against Centra, obtained after the alleged fraud, did not afford them a superior interest over the Government’s interest, which vested at the time of the alleged fraud pursuant to 21 U.S.C. § 853(c). That the cryptocurrency was properly forfeited from Centra because the defendants purportedly exercised control over Centra’s assets. That to impose a constructive trust in favor of the Claimants would be inequitable to the other alleged victims.
Material Facts: Defendants allegedly defrauded investors through the sale of unregistered securities called CTR Tokens. The Government seized cryptocurrency from Centra’s digital wallet which included proceeds of the alleged fraud. The Claimants obtained default judgments against Centra in Florida State court after the purported fraud. Claimants then obtained writs of execution in furtherance of their attempts to enforce their judgments. The Claimants argued they could trace some of the seized cryptocurrency to their specific investments.
Controlling Law: 21 U.S.C. § 853 – Criminal forfeitures; New York law on constructive trusts
The Court’s Rationale: The court ruled that the Claimants’ judgment liens were inferior to the Government’s interest under 21 U.S.C. § 853(c) because the Government’s interest vested at the time of the alleged criminal acts, while Claimants’ liens arose later. The court found that the cryptocurrency was properly forfeited from Centra because the defendants exercised control over the assets, even if the assets technically belonged to Centra. The court ruled that imposing a constructive trust in favor of the Claimants would unfairly prioritize them over other alleged victims who cannot trace their investments.
Procedural Outcome: The court granted the Government’s motion to dismiss Claimants’ petition.
United States v. Crater, 93 F.4th 581 (1st Cir. 2024):
Summary: The defendant, Crater, launched a cryptocurrency called “My Big Coin” (“MBC”), and allegedly falsely claimed that it was backed by gold and could be spent via Mastercard. Customers purchased more than $7 million worth of MBC based upon Crater’s purported misrepresentations. Crater was charged with wire fraud, unlawful monetary transactions, and operating an unlicensed money transmitting business. At trial, Crater attempted to issue a subpoenas for federal agency witnesses, but did not comply with the Touhy Regulations. The District Court admitted expert testimony from a cryptocurrency specialist without holding a Daubert hearing. The jury ultimately convicted Crater on all counts. The District Court did not violate Crater’s Sixth Amendment right to compulsory process by declining to enforce subpoenas against federal agency witnesses because Crater failed to demonstrate that their testimony would have been material and favorable. Furthermore, the District Court did not abdicate its gatekeeping function under Daubert by admitting the Government’s cryptocurrency expert’s testimony without first holding a hearing. The First Circuit affirmed Crater’s conviction. Crater’s conviction and sentence were affirmed.
Key Legal Holdings: The District Court did not violate Crater’s Sixth Amendment right to compulsory process by declining to enforce subpoenas against federal agency witnesses because Crater failed to show their testimony would have been material and favorable to his defense. The District Court did not abdicate its gatekeeping function under Daubert by admitting the Government’s cryptocurrency expert’s testimony without first holding a hearing.
Controlling Law: Sixth Amendment right to compulsory process, as interpreted by Washington v. Texas and United States v. Valenzuela-Bernal; Daubert standard for admission of expert testimony.
The Court’s Rationale: The District Court properly declined to enforce the subpoenas because Crater failed to show the federal agents’ testimony would have been material and favorable, as required by Valenzuela-Bernal. The District Court fulfilled its gatekeeping role under Daubert by reviewing the expert’s qualifications and proposed testimony and allowing Crater to argue for exclusion.
Procedural Outcome: The First Circuit affirmed Crater’s conviction.
Michael Leonard (Attorney)
Matthew Chivari (Attorney)
Antonella Maneiro (Law Clerk
Leonard Trial Lawyers
April 7, 2024