Hiding assets in crypto? The FTC is on to you

Quick Take

  • FTC v. Apex Capital Group
  • FTC has structured their order such that any cryptocurrency held by the defendants are considered assets that need to be accounted for

The Block is delighted to bring you expert cryptocurrency legal analysis courtesy of Stephen Palley (@stephendpalley) and Nelson M. Rosario (@nelsonmrosario). They summarize three cryptocurrency-related cases on a weekly basis and have given The Block permission to republish their commentary and analysis in full. Part II of this week's Crypto Caselaw Minute, is below.

This week’s CCM looks at just what passes for an asset these days, takes a look at when escrow services go wrong, and we are lucky to have a guest post from attorney Andrés Chomczyk who breaks down a recent criminal case in Argentina concerning the theft of ether from an exchange. (As always, Rosario summaries are “NMR” and Palley summaries are “SDP”, and for this week our guest summary is labeled “ACH.”)

Disclaimer: These summaries are provided for educational purposes only by Nelson Rosario [twitter: @nelsonmrosario] and Stephen Palley [twitter: @stephendpalley]. They are not legal advice. These are our opinions only, aren’t authorized by any past, present or future client or employer. Also we might change our minds. We contain multitudes.

[related id=1]Federal Trade Commission v. Apex Capital Group, LLC (C.D. Ca. 2:18-cv-09573, 12/18/2018) [NMR]

Link to order

A common theme you encounter in the cryptocurrency world is that this technology exists in a “Wild West” devoid of regulation. That is not really true. In fact, cryptocurrency is subject to plenty of regulation, and has drawn the attention of many different regulators. One such regulator that is not commonly discussed is the Federal Trade Commission. The Commission is primarily focused on protecting consumers by policing anticompetitive, deceptive, and unfair business practices.


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This case involves an FTC action to stop Apex Capital Group, and affiliated companies and individuals, from operating an online enterprise that allegedly tricked consumer into free trials that weren’t free, buying products without the true cost disclosed, and other nefarious activities. The FTC filed for a permanent injunction on November 14, 2018, to shut down Apex’s business. After the court determined that a temporary restraining order was proper the FTC moved for a stipulated preliminary injunction with asset freeze, receiver, and other equitable relief. This means that Apex is going to be shut down, their assets need to be accounted for, they need to be stopped from destroying documents, and the court needs to preserve its ability to award effective final relief. So, what does this have to do with cryptocurrency?

Well, the FTC knows that people have tried, and continue to try, to hide assets in cryptocurrency. This case is an example of that cognizance as there are multiple references to cryptocurrency in the order. Specifically, the FTC has structured their order such that any cryptocurrency held by the defendants are considered assets that need to be accounted for. Yes, but what does that mean?

Let’s start with a definition. In the order assets are defined as: “any legal or equitable interest in, right to, or claim to, any property, wherever located and by whomever held, including any digital assets such as cryptocurrencies.” (emphasis added). As such, under the header “Duties of Asset Holders and Other Third Parties” in the order cryptocurrency exchanges or service providers are called out as types of assets holders and third parties that are required to comply with the order. Any one of these businesses that receives notice of this proceeding are required to turn over any:

…cryptographic hash value, time stamp, transaction data, public addresses or other information sufficient to identify, locate, and track cryptocurrency in any blockchain or distributed ledger technology system that is belonging to, for the use or benefit of, under the control of, or subject to access by any Defendant…

Practically speaking, if an exchange receives notice of this order from the FTC, and the exchange determines that one of the defendants had an account with them they are going to have to produce their records related to that defendant. So, even though the defendants were not engaged in some sort of crypto scam their actions may have consequences for crypto companies. The Wild West these parts are not.

© 2023 The Block. All Rights Reserved. This article is provided for informational purposes only. It is not offered or intended to be used as legal, tax, investment, financial, or other advice.


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