Guide to Crypto and Blockchain Litigation: Massachusetts

Crypto and Blockchain Litigation: Massachusetts

Currently, there is little federal regulatory framework for digital assets in the United States. We say “little” because the SEC and CFTC have both cobbled together purported regulatory frameworks that utilize tests, such as the Howey test, that is nearly 75 years old. Consequently, Boston stands out among the cities with significant crypto activity in the country, due to its standing as a national and international hub for innovation.

Commonwealth of Massachusetts Regulatory and Litigation Framework

 Massachusetts has slowly emerged as a maintains a distinct approach to cryptocurrency regulation that focuses primarily on investor protection while maintaining relatively streamlined requirements for certain types of transactions. The regulatory framework is defined by several key components:

The foundation of Massachusetts' cryptocurrency regulation begins with 209 CMR 45.00, which specifically limits the state's regulatory scope to money transmission involving foreign countries. The CMR’s limited scope creates a more focused regulatory environment compared to other jurisdictions that regulate all forms of money transmission.

Two pivotal opinions from the Massachusetts Division of Banking in 2020 helped clarify the crypto regulatory landscape:

Opinion 19-008 established that companies processing fiat-to-virtual currency exchanges and facilitating cross-border virtual currency transactions do not require specific licensing for international money transmission. This opinion significantly reduced the regulatory burden for cryptocurrency exchanges operating in the state. 

Opinion 020-003 further expanded regulatory clarity by determining that digital wallet service providers and companies facilitating peer-to-peer transactions could operate without specific licensing requirements. This decision helped foster innovation in the digital payment space while maintaining basic consumer protections.

Pending Legislation

 The state is actively working to change its regulatory framework through House Bill 126, which proposes establishing a specialized commission (including members of the General Court) on blockchain and cryptocurrency. This commission would serve to evaluate and potentially reshape the state's approach to cryptocurrency regulation.

 Notable Cases and Regulatory Enforcement

 Notable Cases

Massachusetts has experienced several significant cryptocurrency-related cases and continues to face ongoing challenges:

The BitConnect scandal of 2018, dubbed as one of the most notorious crypto Ponzi schemes, serves as an important case in Massachusetts' cryptocurrency history. This case, involving a global $2.4 billion cryptocurrency scheme, led to extensive investigations by state securities regulators after numerous Boston investors fell victim to the scheme. The investigation resulted in:

·      Comprehensive review of cryptocurrency investment practices

·      Implementation of stricter oversight measures

·      Enhanced investor protection mechanisms

·      New requirements for cryptocurrency firms to register their securities

In 2020, payment processor Stripe paid $120,000 in connection with a cryptocurrency scheme, to resolve allegations that its risk monitoring and fraud prevention and mitigation practices violated the state’s consumer protection law. Stripe processed payments facilitated by the owner of PlexCoin and his associates, in a scheme to illegally obtain funds from 22 investors in Massachussetts. The settlement required Stripe to implement security protocols to better protect its customers in the future, and to conduct employee trainings to enhance their understanding of risk monitoring, fraud prevention, and mitigation.

Recently, in October 2024, cryptocurrency financial services firm Gotbit, its founder, and two of its directors were indicted in the District of Massachusetts for market manipulation and fraud conspiracy. It is alleged that between 2018 and 2024, Gotbit provided market manipulation services to create artificial trading volume for multiple cryptocurrency companies, including companies located in the US. Clients included the Saitama and Robo Inu cryptocurrencies, the leadership have been indicted separately. Gotbit founder Alexei Andriunin allegedly transferred millions of dollars of Gotbit’s proceeds to his personal Binance account. The developments of this case should be closely watched in 2025 and will contribute to the heightened interest in Boston crypto disputes.

Regulatory Enforcement

Secretary of the Commonwealth of Massachusetts William Galvin's office has taken an aggressive stance on cryptocurrency oversight, implementing several key measures:

·      Active investigation and shutdown of unauthorized Initial Coin Offerings (ICOs)

·      Enhanced enforcement actions against unregistered cryptocurrency firms

·      Implementation of stricter requirements for cryptocurrency exchanges to obtain money transmitter licenses

·      Development of more rigorous oversight mechanisms compared to other states

Despite this aggressive stance, several challenges currently facing the Boston cryptocurrency market include, for instance:

·      Sophisticated crypto ATM fraud schemes targeting vulnerable populations

·      Particular concentration of fraud in Dorchester

·      Increased targeting of elderly residents in East Boston

·      Need for enhanced consumer education and protection measures 

How Dynamis Can Help

At Dynamis LLP, we specialize in navigating the complexities of cryptocurrency law. Whether you’re a business incorporating blockchain technology, an individual facing regulatory scrutiny, or a client involved in a crypto dispute, our experienced team can provide guidance tailored to your unique needs.

If you have questions about cryptocurrency-related legal matters, contact us today. We’re here to help you stay informed and protected in this rapidly evolving space.

How Dynamis Can Help

At Dynamis LLP, we specialize in navigating the complexities of cryptocurrency law. Whether you’re a business incorporating blockchain technology, an individual facing regulatory scrutiny, or a client involved in a crypto dispute, our experienced team can provide guidance tailored to your unique needs.

If you have questions about cryptocurrency-related legal matters, contact us today. We’re here to help you stay informed and protected in this rapidly evolving space.