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Russians Indicted for US Election Hacks Used Bitcoin to Fund Operations

A group of Russian military intelligence officers indicted Friday as part of an ongoing investigation into Russian interference in the 2016 U.S. presidential election allegedly used bitcoin to fund their operations.

In the just-released indictment, prosecutors assert that the 12 named intelligence officers hacked computer networks and email accounts owned and used by the U.S. Democratic Party, including the presidential campaign of Democratic candidate Hillary Clinton.

The details were included under a charge of conspiracy to launder money. According to the indictment, the defendants “conspired to launder the equivalent of $95,000 through a web of transactions structured to capitalize on the perceived anonymity of cryptocurrencies such as bitcoin.”

“In an effort to pay for their efforts around the world … the defendants paid for it with cryptocurrency,” deputy U.S. Attorney General Rod Rosenstein said during a press briefing.

While the defendants allegedly used other currencies, including the U.S. dollar, “they principally used bitcoin when purchasing servers, registering domains, and otherwise making payments in furtherance of hacking activity.”

Payments are said to have been made to companies in the U.S., with some of those funds being traced to a bitcoin mining operation.

The indictment explains:

“In addition to mining bitcoin, the Conspirators acquired bitcoin through a variety of means designed to obscure the origin of the funds. This included purchasing bitcoin through exchanges, moving funds through other digital currencies, and using pre-paid cards. They also enlisted the assistance of one or more third-party exchanges who facilitated layered transactions through digital currency exchange platforms providing heightened anonymity.”

The defendants allegedly used multiple “dedicated email accounts” to both track bitcoin transaction information and facilitate payments, the release added. Further, the indicted officials transferred bitcoin using the same computers that they used in hacking various email accounts

The indictment is the latest to come out of the ongoing – and politically explosive –  investigation into Russian election meddling and the possible involvement of members of the presidential campaign of U.S. President Donald Trump.

Robert Mueller, a former Federal Bureau of Investigation director, was appointed in May 2017 to lead the special counsel investigation, which has drawn the ire of Trump, who has vehemently denied any collusion on election meddling.

Rod Rosenstein image via DOJ 

The leader in blockchain news, CoinDesk is a media outlet that strives for the highest journalistic standards and abides by a strict set of editorial policies. CoinDesk is an independent operating subsidiary of Digital Currency Group, which invests in cryptocurrencies and blockchain startups.

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New US Gov’t Task Force Highlights Digital Currency Fraud for ‘Particular Attention’

Digital currency fraud will form one of the areas of “particular attention” for a new U.S. anti-crime task force with participation from several government bodies, according to an executive order issued July 11.

The Task Force on Market Integrity and Consumer Fraud, which will have the U.S. deputy attorney general as its chair and associate attorney general as vice chair, seeks to “provide guidance for the investigation and prosecution of cases involving fraud on the government, the financial markets, and consumers.”

The executive order outlining the taskforce highlights areas of particular attention as “digital currency fraud,” as well as fraud affecting the general public, along with “money laundering, including the recovery of proceeds; health care fraud; tax fraud; and other financial crimes.”

The U.S. Securities and Exchange Commission (SEC) is among the project’s members, with chairman Jay Clayton saying the move would allow regulators to coordinate activities more efficiently.

“At the SEC we work every day to protect Main Street investors,” he said, continuing:

“This Task Force will allow us to build on the close partnerships we have with our fellow regulators and law enforcement agencies to deter and combat retail fraud.”

The task force’s other participants meanwhile are set to be the U.S. Department of Justice, Consumer Financial Protection Bureau and the Federal Trade Commission.

The SEC and fellow regulator the Commodity Futures Trading Commission (CFTC) had previously committed to close monitoring of cryptocurrency this year, seeking to ensure actors conformed to existing securities laws.

A ongoing joint operation with Canada meanwhile seeks to probe Initial Coin Offering (ICO) operators specifically, intended as a crackdown on illegitimate or suspicious schemes.

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DOJ, SEC Argue Vague Laws No Excuse for ICO Fraud

The U.S. government has pushed back against an effort to dismiss the charges in an ongoing initial coin offering (ICO) fraud lawsuit.

In twin filings submitted Monday, the Department of Justice and the Securities and Exchange Commission (SEC) dismissed claims by defendant Maksim Zaslavskiy that U.S. securities laws don’t apply to the sale of tokens tied to two ventures, one backed by real estate and the other by diamond holdings.

Zaslavskiy – who has pled not guilty to securities fraud – was first charged by the SEC last September, followed by additional charges sought by the Justice Department in November. The SEC case against Zaslavskiy has been put on hold pending the outcome of DOJ’s suit.

The filings are notable given the growing footprint of the U.S. government – and the SEC in particular – in the cryptocurrency space. The SEC has adopted an increasingly active approach since it first publicly declared that tokens issued in conjunction with The DAO, the now-defunct ethereum-based funding vehicle, were securities.

And just last week, a senior official with the SEC’s Enforcement Division disclosed during an event appearance that the agency is conducting “dozens” of investigations in this area.

At the heart of Zaslavskiy’s push to dismiss the charges is the argument that the two tokens in question aren’t actually securities under U.S. law, which he argued is too vague, and are currencies instead. Prosecutors pushed back against this claim, stating that the both the RECoin and Diamond token fall squarely within the boundaries of the Howey Test.

“Now facing prosecution for securities fraud, the defendant claims that his ‘investment opportunity’ was no investment at all–it was just a sale of a currency backed by a commodity, first real estate (REcoin) and then diamonds (Diamond),” the U.S. government’s lawyers wrote. “The currency, according to the defendant, are the worthless certificates sent to investors that prompted some to ask for refunds.”

They went on to argue:

“[Zaslavskiy] also claims that securities laws have not provided him with fair notice that his conduct was unlawful, despite having told his investors that he was in ‘full compliance’ with the law. The defendant’s arguments do not hold water in light of the allegations in the indictment and controlling law. Accordingly, his motion should be denied.”

‘Vagueness’ no excuse

The Department of Justice’s filing strikes a decidedly dismissive tone toward the argument that SEC regulations aren’t clear enough when it comes to the question of cryptocurrencies and ICOs.

Indeed, both of the filings are accompanied by copies of some of the statements issued in recent months by the U.S. securities regulator

“The defendant invites this Court to be the first to declare the Securities Acts unconstitutionally vague (either facially or as-applied),” the DOJ’s filing quipped.

Notably, the government argued that Zaslavskiy knew what he was doing when he began soliciting investments for both token sales, writing that he “had more than sufficient notice that this conduct constituted securities fraud.”

“What is more, there is evidence that the defendant was, in fact, on notice that he was subject to the securities laws,” the government wrote, going on to add that one investor in the RECoin ICO had asked about compliance and had been told “in sum and substance that the investor had nothing to worry about with respect to legal compliance.”

“The SEC also contacted the defendant as early as August 15, 2017 requesting information about the REcoin ICO. The defendant wrote that he planned to hire an attorney, but instead proceeded with the Diamond ICO,” the filing continued.

The DOJ and SEC filings can be found below:

Department of Justice by CoinDesk on Scribd

SEC by CoinDesk on Scribd

Justice statue image via Shutterstock

The leader in blockchain news, CoinDesk is a media outlet that strives for the highest journalistic standards and abides by a strict set of editorial policies. CoinDesk is an independent operating subsidiary of Digital Currency Group, which invests in cryptocurrencies and blockchain startups.

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Philippines to Investigate Crypto Firm over Claimed Link with Politician

The Philippines’ Department of Justice (DOJ) has ordered an investigation into a cryptocurrency firm that allegedly used the name of Senate President Aquilino Pimentel III in order to lure clients.

The politician, commonly known as “Koko” Pimentel, was allegedly misrepresented by Digital Currency Co. Ltd. and Boy Joven in a cryptocurrency venture called Philippine Global Coin, according to a department order released yesterday, as reported by ABS CBN News.

Denying any affiliation with the cryptocurrency firm, Pimentel stated that there is “no partnership” between him and the firm, or the senate and the firm.

He further said in a statement released Monday that he was shocked at the Digital Currency Co. Ltd’s “bold claims,” and added that he had met company representatives, but only as a “matter of courtesy to visitors.”

Pimentel further warned international Filipino workers to be careful over such cases where, names of government officials and organizations are used in investment schemes.

He said:

“The government will never engage in activities that will profit off their sacrifices and hard work. Always check with the Philippine Embassy to verify individual claims of this nature.”

The order stated that, if sufficient evidence is found to support the case, appropriate charges should be filed against the company.

Image via Koko Pimental

The leader in blockchain news, CoinDesk is an independent media outlet that strives for the highest journalistic standards and abides by a strict set of editorial policies. Have breaking news or a story tip to send to our journalists? Contact us at news@coindesk.com.

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Philippines Investigates Crypto Firm over Use of Politician's Name

The Philippines’ Department of Justice (DOJ) has ordered an investigation into a cryptocurrency firm that allegedly used the name of Senate President Aquilino Pimentel III in order to lure clients.

The politician, commonly known as “Koko” Pimentel, was allegedly misrepresented by Digital Currency Co. Ltd. and Boy Joven in a cryptocurrency venture called Philippine Global Coin, according to a department order released yesterday, as reported by ABS CBN News.

Denying any affiliation with the cryptocurrency firm, Pimentel stated that there is “no partnership” between him and the firm, or the senate and the firm.

He further said in a statement released Monday that he was shocked at the Digital Currency Co. Ltd’s “bold claims,” and added that he had met company representatives, but only as a “matter of courtesy to visitors.”

Pimentel further warned international Filipino workers to be careful over such cases where, names of government officials and organizations are used in investment schemes.

He said:

“The government will never engage in activities that will profit off their sacrifices and hard work. Always check with the Philippine Embassy to verify individual claims of this nature.”

The order stated that, if sufficient evidence is found to support the case, appropriate charges should be filed against the company.

Image via Koko Pimental

The leader in blockchain news, CoinDesk is an independent media outlet that strives for the highest journalistic standards and abides by a strict set of editorial policies. Have breaking news or a story tip to send to our journalists? Contact us at news@coindesk.com.