Cryptocurrency Tax Evasion & Fraud

Cryptocurrency Tax Evasion & Fraud 

Cryptocurrency Tax Evasion & Fraud: Oftentimes, when a US taxpayer violates the Security Exchange Commission (SEC), it will lead to two types of enforcement matters: a Civil Matter led by the SEC and a tandem Criminal Matter led by the US Attorney’s Office. When it comes to Cryptocurrency, these types of matters are ripe for both SEC and AO investigations and charges.

Why?

Because oftentimes the Cryptocurrency and virtual currency violations involve securities, money laundering, smurfing, structuring, offshore reporting and general tax compliance. Despite any measures taken by the Cryptocurrency Company/Promoter to circumvent or avoid making it appear as if they are offering securities — at the end of the day, it is just that. When offering securities, there are certain (strict) requirements that companies must abide by before offering them for purchase and acquisition.

Recent SEC Charges for Cryptocurrency Tax Evasion & Fraud

In recent years, and especially as of late the U.S. government has increased enforcement of violations involving the SEC. Here are a few recent charges:

SEC v. Cutting

• • • “The Securities and Exchange Commission filed an emergency action and obtained a temporary restraining order and asset freeze against Shawn C. Cutting of Sandpoint, Idaho, for allegedly raising millions of dollars from hundreds of investors by falsely claiming to be a financial adviser with securities licenses, overstating investment returns, and misappropriating money received from investors.”

SEC v. Coinseed, Inc., et al.

• • • “The Securities and Exchange Commission charged Coinseed, Inc., a company that purported to offer a mobile investment application that enabled users to invest in digital assets, and its co-founder and Chief Executive Officer, Delgerdalai Davaasambuu, in connection with Coinseed’s offer and sale of digital asset securities.”

SEC v. Krstic, et al.

• • • “The Securities and Exchange Commission charged three individuals with defrauding hundreds of retail investors out of more than $11 million through two fraudulent and unregistered digital asset securities offerings.”

SEC v. Qin, et al.

• • • “The Securities and Exchange Commission filed an emergency action and obtained an order imposing an asset freeze and other emergency relief against Virgil Capital LLC and its affiliated companies in connection with an alleged securities fraud relating to Virgil Capital’s flagship cryptocurrency trading fund, Virgil Sigma Fund LP. The Commission’s action alleges that the fraud was directed by Stefan Qin, an Australian citizen and part-time resident of New York, who owns and controls Virgil Capital and its affiliated companies.”

SEC v. Ripple Labs, Inc., et al.

• • • “The Securities and Exchange Commission filed an action against Ripple Labs, Inc. and two of its executives, who are also significant security holders, alleging that they raised over $1.3 billion through an unregistered, ongoing digital asset securities offering.”

SEC v. Elmaani

• • • “The Securities and Exchange Commission charged Amir Bruno Elmaani, who goes by the online alias Bruno Block, for conducting an illegal securities offering of digital tokens and for his scheme to profit by minting millions of unauthorized tokens for himself at no cost and selling them into the secondary market, thereby causing the value of others’ tokens to plummet.”

Department of Justice Criminal Crypto Violations

In addition to the Securities and Exchange Commission civil charges there have been several cryptocurrency related criminal actions filed as well by the US government.  Here are a few:

My Big Coin Pay Inc.

• • • “The founder and principal operator of My Big Coin Pay Inc. (My Big Coin), a purported cryptocurrency and virtual payment services company headquartered in Las Vegas, Nevada, was charged in an indictment unsealed today for his alleged participation in a scheme to defraud investors by marketing and selling fraudulent virtual currency.”

Helix

• • • ‘”An Ohio man was arrested for his operation of Helix, a Darknet-based cryptocurrency laundering service.  In the three-count indictment unsealed Feb. 11 in the District of Columbia, Larry Harmon, 36, of Akron, Ohio, was charged with money laundering conspiracy, operating an unlicensed money transmitting business and conducting money transmission without a D.C. license.”

    • “According to the indictment, Harmon operated Helix from 2014 to 2017.  Helix functioned as a bitcoin “mixer” or “tumbler,” allowing customers, for a fee, to send bitcoin to designated recipients in a manner that was designed to conceal the source or owner of the bitcoin.  Helix was linked to and associated  with “Grams,” a Darknet search engine also run by Harmon.  Harmon advertised Helix to customers on the Darknet as a way to conceal transactions from law enforcement.”

Start Options and B2G

• • • “According to the indictment, Krstic was the founder of two digital-asset investment platforms, “Start Options” and “B2G,” and also served as the chief financial officer of Start Options. As alleged, between approximately 2017 and 2018, Krstic and others fraudulently induced U.S.-based investors to purchase securities in the form of investment contracts in Start Options and B2G.”

    • In order to perpetuate the fraud, Krstic allegedly used the alias “Felix Logan” and created the Twitter handle “@felixlogan_cfo” to communicate with investors in Start Options and B2G.”

Tax Amnesty to Avoid Cryptocurrency Tax Evasion & Fraud

In conclusion, the IRS has made Cryptocurrency tax fraud and evasion enforcement a key priority. At the current time, there is no separate amnesty program for matters involving Cryptocurrency. A few years back, the Internal Revenue Service had stated that they would not be creating a separate standalone program for Cryptocurrency – but since then Cryptocurrency has gained a lot of traction, in addition to a surge in popularity — so it may be possible.

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