Alabama Plays Key Role Against Cryptocurrency Fraud In USA, Accounts For 20% Of All Active C&Ds
Alabama Plays A Key Role Against Cryptocurrency Fraud In the United States
Alabama, the 24th largest state in the U.S. is at the frontline of cryptocurrency crackdown in the country. Greg Bordenkircher, the chief litigator at the Alabama Securities Commission, said that Alabama is playing a leading role in the current fight against the crypto fraud in the United States.
During a conversation with CoinDesk, he said that they have issued nine orders to shut down businesses advertising in Alabama. At the same time, he said that they have between 20 and 22 other businesses that they are looking at.
“We’ve issued nine orders shutting down businesses that are advertising in Alabama. We have another 20, 22 that we are looking at right now.”
Although it might seem that they are alone, they have support from many different agencies and associations. However, the agency that Bordenkircher presides is part of the North American Securities Administrators Association (NASAA). This coalition has been working in order to uncover illicit activities in the country. Canadian prosecutors have also played an important role to help the ICO space be clean from scammers and fraudsters.
These agencies have performed a weep of initial coin offerings that attacked illegal activity in all the continent. There were 300 different projects but only 200 have been investigated after considering that 100 were not fraudulent.
According to Bordenkircher, the U.S. Securities and Exchange Commission (SEC) and the U.S. Commodity Futures Trading Commission (CFTC) have also played an important role in regulating the market. But he explains that there are more local agents working than those from the SEC and the CFTC.
This, however, does not mean that there is no coordinated work between agencies. Federal and state-level agencies share information and coordinate different processes.
Before working with the state of Alabama, Bordenkircher was working as an assistant U.S. attorney for the Southern District of the State of Alabama. He was in charge of complex litigations that were related to arms’ chasing across the internet. He had to look for buyers and sellers on the internet that were matching up deals.
The law enforcement agency sets up computer systems that use private networks to visit suspicious websites and track activity without people who built the site realizing that they are being visited by these agencies.
The system hat the agency uses is built using cryptographic hashes, something that the cryptocurrency world has been interacting with since a very long time. With these hashes, it is possible to preserve a website and prove that the data was logged at a certain time and that it was not changed.
Nonetheless, building a system like this one is not an easy task. Alabama works with Cyber Forensics that make sure that specific sites have enough red flags to be investigated even further.
Bordenkircher explained that when they receive a specific number of red flags, they have to make a legal determination when it is necessary to make a shutdown or when to be prosecuted. If the company is selling unregistered securities, the state can proceed with the investigation and take action.
In order to shut down the projects, the state will be sending a cease-and-desist letter to receive information in 30 days to the state. The company can explain why they have been erroneously targeted. However, Bordenkircher said that no team tried to defend their operations so far. Indeed, they just close their project and disappear.
The investigators mentioned to CoinDesk some issues and checklists that guarantee that an operation is fraudulent. Some of the issues are related to Multiple IPs, Phony physical addresses, Location masking, non-sensical pitch, copy-and-paste, unrealistic claims, and more.
Multiple IP addresses that are related to a company or person is something that is not normal. For example, if there are different IP addresses this could mean that there is one operation setting up different ICOs.
The addresses provided by the project must be valid. In some cases, the information provided does not exist or it is just fake. At the same time, it is important for the state to understand whether the company is located in the United States or it pretends to do so even when it’s located outside.
Furthermore, it is possible for the project to promote a product that is not real. It is possible for the company to say that they are applying blockchain technology to a specific industry that might not need distributed ledger technology (DLT) with the intention to just create buzz around the project. Following the same line, some ICOs pretend to be unique but they have copied the information from other existing projects in the market.
Finally, if the company seems to be claiming things that are not real, this is also a point to take into account by the local agencies.
Another thing that they have mentioned to CoinDesk is that there are also some behaviors that would clearly raise concerns among investigators. For example, does the company have very aggressive sales strategies? Do they really respect local US rules?
The agency informed that if they contact the company to invest in their product and the project answers back several times pressing the individual to purchase what the company is selling, this is also a red flag. Bordenkircher explains that this is a strong sign that there is further investigation required. If there are good brokers, they will clearly be following up, but those that do it in excess are generally fraudsters.
Moreover, if the ICO or project says that it does not offer services and products to U.S. residents, it must respect that. Some ICOs tend to buy U.S. hosting services and run ads that target U.S. customers.
If fraudsters know that there is a law enforcement agent behind an investigation, they would clearly not respond to inquiries. But if law enforcement agents properly hide behind a virtual private network, the results could be very positive.
Although the main intention is to stop fraudsters, they are very careful not to stifle innovation in the cryptocurrency and blockchain world.
On the matter, Bordenkircher said:
“We don’t want to limit in any way legitimate ICOs or legitimate utility coins or people who are trying to raise legitimate businesses.”
This is a very important point. Regulators are facing a very difficult situation. Which is the limit between being too oppressive or being too naive about the projects in the space? This is something that must be debated and analysed very carefully. Creating a clear and flexible legal framework related to ICOs and blockchain technology is not an easy task.