NY Attorney General’s Office Fall Round-Up: AG Letitia James’ Actions & Initiatives Related to Cryptocurrency Since August 2021

On November 15, 2022, the New York Attorney General’s Office released its Fall Round-Up (“Round-Up”) describing major actions and initiatives implemented by New York Attorney General Letitia James (“AG James”) since August 2021. Among others, the Round-Up discusses actions and initiatives AG James has undertaken related to cryptocurrency, including investment in cryptocurrency, cryptocurrency exchanges, and consumer protection.

Regarding cryptocurrency investment, the Round-Up states that on August 1, 2022, AG James released an investor alert urginging “any New Yorker deceived or affected by the cryptocurrency crash to contact her office.” According to the Round-Up, the August 1 alert also encouraged individuals who work in the cryptocurrency industry and have witnessed fraud or misconduct to file a whistleblower complaint. Further, the Round-Up states that earlier this year, in March 2022, AG James issued a “taxpayer notice,” reminding cryptocurrency investors and their tax advisors “to make sure that they accurately declare and pay taxes on their virtual investments.” 

The Round-Up also notes significant actions AG James has taken involving cryptocurrency exchanges. Specifically, the Round-Up describes cease and desist letters AG James sent to two cryptocurrency platforms on October 18, 2021. The cease and desist letters followed a $3 million judgment secured by the New York County State Supreme Court against a cryptocurrency trading platform. The Round-Up also notes that the cease and desist letters stated that two unnamed cryptocurrency  exchanges were allegedly “unlawfully selling or offering to sell . . . securit[ies] . . . without having registered as required” under the Martin Act, a law in New York that requires cryptocurrency exchanges to be registered as brokers, dealers, or salespersons, unless otherwise exempted. In addition to the cease and desist letters, the Round-Up mentions that AG James also directed three other cryptocurrency platforms to provide information about their activities and products. 

Additionally, the Round-Up discusses two significant actions that AG James has taken to crack down on entities that fail to follow New York registration requirements and make misrepresentations to consumers. First, the Round-Up mentions that on September 26, 2022, AG James joined in a suit in the New York Supreme Court with regulators of seven other states who are suing cryptocurrency companies for allegedly failing to register in New York as securities and commodities brokers or dealers, and also allegedly misrepresented their registration status to investors. Further, the Round-Up describes that AG James reached a $479.9 million settlement with two companies in September 2021. The two companies allegedly raised more than $30 million from pre-sales of two digital instruments promoted as cryptocurrencies, and also allegedly unlawfully sold cryptocurrency and stock without registering them in New York. According to the Round-Up, the two companies will receive credit toward the $479.9 million settlement for payments to the Securities and Exchange Commission (“SEC”) in connection with an SEC investigation.