So DOJ Is Investigating the Crypto Space - What Will They Find?

So DOJ Is Investigating the Crypto Space – What Will They Find?

The Justice Department, America’s top law enforcement body, has officially launched an investigation into cryptocurrency price manipulation practices per four sources with knowledge of the probe. Now the grand question is: what’s next?

Also read: India’s Leadership Mulling 18% GST Tax on Crypto

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Where’s This Rabbit Hole Lead?

So crypto manipulators are now officially on notice — the DOJ’s looking for you.

Multiple anonymous informants have revealed that Justice Department prosecutors, with help from Commodity Futures Trading Commission (CFTC) officials, are investigating the cryptocurrency ecosystem for fraudulent price manipulation activities. Specifically, they cited wash trading and order spoofing as the kinds of practices that were going to be targeted.

The individuals also noted that the absence of regulatory clarity in the fledgling crypto-asset space and the prospect of inadequate anti-manipulation measures on exchanges as fostering the conditions that made widespread manipulation possible, thus the launch of the probe.

DOJ Attorney General Jeff Sessions pictured.

The law enforcement milestone comes as allegations have grown within the cryptoverse that price manipulation of bitcoin and other cryptocurrencies has become ubiquitous.

So now we put our speculative caps on. What comes next?

NYT’s Popper Wonders About P&Ds

In response to the DOJ probe, New York Times‘ crypto correspondent Nathaniel Popper wondered out loud on Twitter whether or not investigators will widen their scope to examine pump and dump schemes, too:

The question comes as the CFTC itself has been giving more attention to pump and dumps, with the agency launching a bounty system for tips leading to the bust of these schemes.

And, back to Popper’s point about scope, one wonders what sort of enforcement actions the DOJ would or could take if any wrongdoing is explicitly uncovered by the crypto probe — will they ignore P&Ds in going after bigger, more singular frauds? Would it sanction foreign exchanges, or is it simply interested in rooting out these practices within the U.S.?

Speaking of the U.S., What About Spoofy?

Will the DOJ be able to uncover the fabled  “Spoofy”?

That being the nickname, of course, for a trader or traders who execute massive order spoofs for price manipulation. And Spoofy’s been active on U.S. exchanges. So the answer depends on how these exchanges, which will presumably be very compliant, interact with the probe.

If these exchanges are completely deferential, then they’ll be handing over everything they have on these traders — though the prospect is there that some of these traders’ ID documents are fraudulent and thus inaccurate.

On the flip side, exchanges may legally contest within what lanes they have anything they perceive to be unnecessarily over-reaching. Then again, there’s only so much you can do when the DOJ comes knocking.

We’ll have to see how it shakes out.

Former JPMorgan VP Chimes In on Manipulation

Jason Toncic, who serves as Chief Marketing Officer at the Relex crypto project, just wrote a column about his company’s personal brush with cryptoeconomy manipulators.

Toncic describes having been “approached by new exchanges offering additional trading volume and price increases by unscrupulous means.”

Toncic refuted the offers, and on the heels of today’s DOJ probe, Relex Director of U.S. Operations Peter Lee, a former VP at JPMorgan, said the space-wide investigation is welcomed:

“We intend to grow organically, and refuse to engage in price manipulation practices to gain market share. My hatred for fraud, legal or not, will continue to drive the business in an honest and transparent way. I welcome the shake down of the industry. We will not only cooperate, but give full support to the US government in their investigation of cryptocurrency-related price manipulation practices, effective immediately.”

This Sunday, May 27th, Director Lee will be conducting a Telegram townhall Q&A where those who are interested can presumably ask questions about the incident.

What About the Coinbase Insider Trading Allegations

Last year, Coinbase CEO Brian Armstrong declared his company would be conducting an investigation into allegations that some at Coinbase might have participated in insider trading during the top fiat-to-crypto gateways Bitcoin Cash (BCH listing.

Now, insider trading isn’t wash trading or order spoofing, but it is a fraudulent practice that might fall under the new DOJ probe’s purview, though nothing’s been declared to that effect thus far. If so however, the feds would presumably do their due diligence on the episode.

What’s your take? Where do you think this probe goes from here? Let us know in the comments below.


Images via YouTube, KTLA

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