Guide to Crypto and Blockchain Litigation: Massachusetts

Crypto and Blockchain Litigation: Massachusetts

The Commonwealth of Massachusetts has emerged as a critical hub for crypto-asset enforcement and litigation, showcasing the intersection of cutting-edge technology and complex legal challenges.

With federal and state courts leading the way, Massachusetts, for example, has played and continues to play a pivotal role in addressing fraudulent schemes, including the rise of sophisticated “pig butchering” scams that leverage romance cons and AI-generated deepfakes to deceive victims. Multiple lawsuits have been filed in the state and federal courts regarding these threats, prioritizing civil forfeiture as a powerful tool to recover stolen crypto assets. On the enforcement side of things, the SEC has led the way in going after perceived fraud within the crypto community, while the DOJ has kept a lighter, but still important, footprint. Not to be outdone, state regulators and legislation is also playing an important role in evolving crypto policy. This article explores the critical role Massachusetts courts and government play in shaping the future of cryptocurrency law, and why experienced legal counsel, such as the attorneys at Dynamis LLP specializing in crypto disputes, are needed.

Massachusetts Federal Courts

The Massachusetts federal courts have seen the filing of interesting crypto disputes in recent years, including several crypto “pig-butchering” schemes, Business Email Compromise (BEC) fraud schemes where payment is demanded in crypto, and other money laundering schemes involving cryptocurrencies:

Civil Litigation

Dynamis represents Leonard Licht, a 75-year-old widower from Plano, Texas, in an $8.1 million RICO lawsuit against Binance and former CEO Changpeng Zhao. The February 2024 complaint alleges Licht was defrauded of $2.7 million, his life savings, through a pig-butchering scheme run by a criminal syndicate in Cambodia, which involved misleading investment in a non-existent cryptocurrency mining operation. Licht's funds were laundered via Binance using Tether cryptocurrency (USDT). The RICO complaint claims Binance evaded U.S. regulations, ignoring anti-money laundering and KYC checks, and allowed U.S. users access to its global platform. This follows Zhao's guilty plea for AML violations and a $4.3 billion settlement. The complaint was amended in May 2024 to include more RICO allegations and over 20 additional plaintiffs.

DOJ Enforcement Actions

In November 2024, Alan Joseph, a Massachusetts resident from Lancaster, MA, was convicted of money laundering and operating an unlicensed money transmitting business converting cash into Bitcoin following a five-day jury trial. Joseph was converting cash proceeds from the sales of counterfeit goods into crypto, to help his customers conceal their criminal cash flow. His customers would send their illegal cash proceeds through the mail, and Joseph would then launder the funds into Bitcoin. He was arrested following an investigation led by the HSI (Homeland Security Investigations) New England’s El Dorado Task Force with the FBI’s Boston Division, the IRS-CI Boston Field Office, and the U.S. Postal Inspection Service in New England. U.S. District Court Judge for the District of Massachusetts Margaret R. Guzman scheduled his sentencing for February 2025.

 In the first guilty plea of a crypto “market maker” in the District of Massachusetts, Liu Zhou, the founder of cryptocurrency firm MyTrade, pleaded guilty in October 2024 to conspiracy to commit market manipulation and wire fraud. MyTrade offered a service called “Volume Support” through its MyTrade MM platform that engaged in wash trading - a fraudulent practice where traders buy and sell the same asset repeatedly to artificially inflate trading volume and prices. The company used automated bots to execute these trades for dozens of clients. The investigation uncovering MyTrade MM’s wash trading services involved the creation, at the direction of the FBI, of a fake crypto company, NexFundAI, and an Ethereum-based token trading on the Uniswap cryptocurrency exchange. During discussions with supposed NexFundAI promoters, Zhou openly described his company's fraudulent practices, including how they executed "pump and dumps" and deliberately caused other traders to lose money for their clients' profit. A “pump and dump” is a scam where fraudsters artificially drive up an asset’s price by spreading misleading information and creating fake trading activity, then sell their holdings at the peak (“dump”), causing the price to crash and leaving other investors with losses. As of early October 2024, MyTrade MM’s volume support function, i.e. wash trades made by trading bots, was available to dozens of clients. US District Court Judge for the District of Massachusetts Angel Kelley scheduled Zhou’s sentencing for February 2025.

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. The US Attorney’s Office for the District of Massachusetts alleges 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. Gotbit’s clients included the Saitama and Robo Inu cryptocurrencies, whose leadership have been indicted separately. Gotbit founder Alexei Andriunin allegedly transferred millions of dollars of Gotbit’s proceeds to his personal Binance account. The Securities and Exchange Commission (SEC) also filed a civil action. The developments of this case should be closely watched in 2025 and will contribute to the heightened interest in Boston crypto disputes.

 In the fifth civil forfeiture action filed seeking forfeiture of cryptocurrency traced to fraud schemes targeting Massachusetts victims, the US District Court for the District of Massachusetts issued a final judgment in March 2024 ordering the forfeiture of 18.836 Bitcoin seized from a Binance account. At the time, the Bitcoin sum had an estimated value of $500,000. The case involved a BEC (Business Email Compromise) fraud scheme, also known as EAC (Email Account Compromise) fraud scheme, in which individuals obtain unauthorized access to email accounts that a business uses to send information about commercial, real estate, and other financial transactions. Targets impersonate individuals expecting to receive money from these transactions and send requests that payments be directed to a network of bank accounts that they control. In this case, a Massachusetts resident was tricked into wiring $400,000 into a bank account located in California, and the funds were subsequently used to purchase 18.836 Bitcoin on Binance.US. The United States Secret Service estimates that over $2 billion are lost every year through BEC/EAC schemes.

In June 2024, US District Court for the District of Massachusetts Judge Denise Casper ordered the forfeiture of over 204,000 Tether (USDT) and 18.9649 Bitcoin (BTC), worth about 500,000 dollars at the time, from Chinese businessman Yicheng Wang’s Binance account. Wang, the vice president of a Bangkok-based Chinese trade group, was featured in a Reuters investigation into fraudulent crypto schemes run from South-East Asia. An affidavit by a US Secret Service Special Agent stated that Wang’s bank account had received over $90 million since its opening in 2020, a level of activity reflecting control “by a criminal organization for the purpose of laundering stolen funds”, according to the affidavit. The investigation found that of those $90 million, over $9.1 million came from a crypto wallet linked to a pig-butchering scheme. The United States Secret Services seized Yicheng’s stolen crypto assets in June 2023, after tracing them from a Massachusetts victim’s account. No criminal action was taken in this case, with the US Attorney’s Office in Massachusetts increasingly using civil forfeiture to recover assets stolen in crypto fraud schemes.

In March 2022, Judge Rya W. Zobel of the US District Court for the District of Massachusetts sentenced Binh Thanh Le, the leader and organizer of a “dark web” drug trafficking operation, to 8 years in prison and 3 years of supervised release. Le’s operation involved selling drugs on the “dark web” using crypto payments and shipping the drugs via mail. What sets this case apart is that for the first time in any Massachusetts case, a defendant was sentenced to forfeiting cryptocurrency, with Le sentenced to forfeiting more than 59 Bitcoin worth in excess of $2 million at the time. Le was also sentenced to forfeiting ill-gotten gains in cash, as well as drugs and other items used in the operation such as a pill press and a currency counter. The initial court filing was part of a civil forfeiture action, a tool that the US Attorney’s Office for the District of Massachusetts is regularly using to recover funds stolen via fraudulent crypto schemes.

Regulatory Agencies: SEC/DOJ/CFTC

Federal regulatory agencies have also maintained an active presence in Massachusetts, pursuing significant enforcement actions that have helped shape cryptocurrency law and policy:

In October 2024, the Securities and Exchange Commission (SEC) won a case against Richmond-based defunct cryptocurrency firm Rivetz Corp, and its former CEO Stephen Sprague. US District Court for the District of Massachusetts Judge Mark Mastroianni found that Rivetz Corp sold unregistered securities when it sold its Ethereum-based token Rivetz (“RvT”) in 2017. The SEC sued Rivetz Corp in 2021 over the sale of $18 million worth of Rivetz tokens in a 2017 ICO (Initial Coin Offering) to over 7,200 investors, a third of which were in the US. While there was no dispute concerning the material facts of the case, Sprague, who represented himself, claimed that the RvT token was a software product and not an investment contract as the SEC claimed, and therefore, it did not qualify as a security under the Howey test. The Howey test is a legal test used in the US to determine whether a transaction qualifies as an investment contract, and thus, is considered a security under federal law. If the Howey test criteria are met, the transaction is subject to federal securities laws and regulations. The Howey test has three prongs: (i) a financial investment, i.e. the transaction’s participants must risk their own money; (ii) a shared enterprise. i.e. the financial success of the transaction’s investors is connected; and (iii) an expectation of profits originating solely from the efforts of others, i.e. the investors are relying on a third-party, or a particular group or organization, to generate a return on their investment. In the Rivetz case, Judge Mastroianni applied the agreed with the SEC in determining that the RvT token was an investment contract, i.e. a security, and not a software product as claimed by Sprague. The SEC’s win in the Rivetz case comes shortly after its partial win in its New York case against Opporty and owner Sergii Grybniak, who similarly offered unregistered securities in a 2018 ICO for about $600,000.

The Commodity Futures Trading Commission (CFTC) has also been active in the jurisdiction, as shown by its 2018 action against My Big Coin Pay, Inc. In this case filed in January 2018, a New York and a Michigan resident as well as My Big Coin Pay, a Nevada-based corporation, were charged with commodity fraud and misappropriation related to the ongoing solicitation of customers for a virtual currency known as My Big Coin (MBC). The defendants allegedly misappropriating over $6 million from customers by, among other things, transferring customer funds into personal bank accounts, and using those funds for personal expenses and the purchase of luxury goods.” What sets this case apart is its role in establishing the CFTC's authority to prosecute virtual currency fraud. Following the defendants’ motion to dismiss the case based on the CFTC’s lack of jurisdiction, US District Court for the District of Massachusetts Judge Rya W. Zobel's affirmed the CFTC's power to prosecute fraud involving virtual currency in September 2018 and set an important precedent for future enforcement actions. My Big Coin founder Randall Crater was also convicted of four counts of wire fraud by a federal jury in connection with the My Big Coin crypto scheme.

Massachusetts State Courts

 The Massachusetts state courts have also encountered a number of crypto disputes in recent years, including several crypto “pig-butchering” schemes.

In October 2024, the Massachusetts Attorney General filed a complaint with the Massachusetts Superior Court against trading platform NYSE.LPQV.Live. The complaint alleges that NYSE.LPQV.Live, usurping the legitimacy of the real NYSE (New York Stock Exchange), used dating apps such as Tinder to lure victims into a fraudulent crypto scheme. According to the complaint, NYSE.LPQV.Live representatives would establish trust with victims via dating apps by expressing interest in them. Once this was achieved, they would then convince the unsuspecting victims to open an account with the trading platform and invest crypto into it. Once the victims tried to withdraw their funds, NYSE.LPQV.Live would inform them that their accounts were frozen due to purported concerns about “money laundering” and would extort more money from them in the form of bogus penalties and taxes. The State of Massachusetts alleged that the scheme constitutes deceptive acts or practices under Massachusetts consumer protection laws and asked for injunctions and other immediate relief.

In May 2024, the Massachusetts Superior Court ordered cryptocurrency trading platform SpireBit to pay over $269,000 in Tether over a “pig-butchering” scheme. In the SpireBit case, SpireBit representatives were targeting victims nationwide, specifically elderly Russian-speaking elders. The cryptocurrency trading platform used images and videos, including deepfakes—such as a Russian-speaking Elon Musk—touting the benefits of investing into SpireBit and luring victims into investing with the platform. The action was brought under the Massachusetts Consumer Protection Act, and four individual victims based in Massachusetts recovered their initial investments as of October 2024.

In August 2023, the Massachusetts Attorney General brought a lawsuit against CreditCoin.CC, a Chinese cryptocurrency company, over a pig-butchering scheme. CreditCoin.CC imitated CreditCoin, an established coin venture, and lured victims into investing in the platform by falsely advertising the imminent launch of an Initial Coin Offering (“ICO”). After informing investors that their initial investment had grown exponentially, CreditCoin.CC allegedly required payment of a security fee to withdraw the funds, and defrauded investors of their money. The action was brought under the Massachusetts Consumer Protection Act.

In September 2020, payment processor Stripe agreed to pay $120,000 to the Attorney General’s Office as part of a settlement related to a fraudulent cryptocurrency scheme. The assurance of discontinuance states that starting August 2017, the founder of PlexCoin, a cryptocurrency and a crypto token, used five Stripe accounts to process fraudulent payments related to the PlexCoin Initial Coin Offering. Between August 2017 and September 2017, the PlexCoin founder and affiliates obtained millions of dollars in PlexCoin ICO investor funds from thousands of investors via Stripe. While Stripe suspended these accounts in September 2017, an investigation conducted by the Attorney General Office raised serious allegations that Stripe’s risk monitoring and fraud prevention and mitigation practices violated the Massachusetts Consumer Protection Act. Stripe’s payment of $120,000 to the Attorney General’s Office is not an admission of liability, but the payment processor committed to implementing new security protocols and conducting employee trainings as part of the settlement.

Commonwealth of Massachusetts Regulatory Approach

Massachusetts has taken a practical, step-by-step approach to regulating cryptocurrency and digital assets. Starting with basic guidance on bitcoin ATMs in 2014, the state has built out its framework through a series of key opinions and regulations, culminating in Governor Healey's signing of Bill H4840 in January 2025. The Commonwealth’s strategy focuses on two main goals: protecting consumers and creating clear rules for crypto businesses. Rather than creating a comprehensive crypto regime, Massachusetts has focused its oversight on key areas like foreign money transmission while establishing straightforward guidelines for emerging digital asset businesses.

Enacted Legislation

In early January 2025, Governor Maura Healey signed Bill H4840, an act relative to the regulation of money transmission by the Division of Banks. This act establishes new consumer protections for Massachusetts residents who use payment apps, and adds new regulatory requirements, such as consistent supervision, for non-bank entities offering the same services as bank institutions. While the act is not specifically crypto-focused, it provides additional regulations and supervisory power to the Division of Banks in scrutinizing non-banks offering financial services, including cryptocurrency trading platforms. By introducing a single statutory framework for the licensing, examination and regulation by the Division of Banks (DOB) for all money transmitters in Massachusetts, the act aims to level the playing field between different types of business operating in the state. In addition, the act aims to align Massachusetts regulatory frameworks with national standards and facilitate collaboration along multiple states in the form of “networked supervision”. Massachusetts would join a national system based on common policies across states, reinforcing consumer protection and minimizing fraud risks through third-party apps.

Massachusetts’s regulatory foundation otherwise includes several key components:

1. The Division of Banks’ 2014 Selected Opinion 14-004, which provided early guidance by exempting bitcoin ATMs/kiosks from branch network regulations and cryptocurrency from foreign currency transmission regulations. Regulation 209 CMR 45.00 specifically limits the state’s regulatory scope to money transmission involving foreign countries, and therefore Selected Opinion 14-004 clearly exempts cryptocurrency from the scope of this regulation.

2. Two 2020 opinions from the Division of Banks:

• Opinion 19-008 establishes 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 of Massachusetts.

• Opinion 020-003 determines that digital wallet service providers and companies facilitating peer-to-peer transactions could, for certain services, operate without meeting specific licensing requirements. Concerning a crypto wallet service, a provider would still require a license since users can directly send crypto to specific individuals, including foreign-based individuals. In contrast, a bank account service would not require a licensing to the extent that it is limited to a user moving their own assets between their own bank accounts. If the service involved users sending money to other individuals, it would require a license the money is sent to a specific individual. If the money is sent to an unknown recipient through a trading platform (“P2P Exchange”), there is no licensing requirement either since it does not qualify as money transmission under Massachusetts law. The opinion clarified that if providers changed the way any of these three different services operated, they might need to obtain different licenses.

Pending Legislation

The state is actively working to evolve 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. While the bill was first introduced in 2021 and redrafted in 2022, no further action was taken as of January 2023 and up to present.

Massachusetts State Regulatory Enforcement

Secretary of the Commonwealth of Massachusetts William Galvin's office has taken an aggressive stance on cryptocurrency oversight, implementing several key measures, with active investigations and shutdown of unauthorized Initial Coin Offerings (ICOs). The Securities Division of the Secretary’s investigations-arm leads the way to enhanced enforcement actions against unregistered cryptocurrency firms, including:

o   TradeStation Crypto, Inc. (TCI):

• §  TCI offered an "Interest Feature" to Massachusetts residents that paid interest on crypto holdings, which the state deemed an unregistered security

• §  TCI lent customer crypto assets to institutional borrowers like BlockFi and Genesis, generating revenue to pay the interest

• §  In a consent order dated March 2024, TCI was ordered to pay $29,411.76 fine and cease offering unregistered securities in Massachusetts

o   Kenzley Ramos:

• §  Kenzley Ramos (operating under multiple aliases) advertised fraudulent forex trading services on Craigslist across multiple states, promising guaranteed returns and misrepresenting his trading experience/success

• §  Bank records showed Ramos took investor funds and used them for personal expenses rather than trading, while operating without proper registration or licenses

• §  In an administrative complaint dated July 2020, the state of Massachusetts sought to permanently bar Ramos from securities activities in the state, require restitution to investors, and impose fines for multiple violations of securities laws including fraud and unregistered activity

o   Blue Vase Mining:

• §  Blue Vase Mining offered an unauthorized cryptocurrency mining subscription service and ownership shares in mining rigs, with promises of guaranteed returns

• §  In a consent order dated May 2018, the company was ordered to pay a $5,000 fine, offer rescission to investors, cease selling unregistered securities, and provide prior notice of any future securities offerings

• §  The company agreed to register properly and comply with securities regulations for any future offerings in Massachusetts

o   Caviar and Kirill Bensonoff:

• §  Bensonoff created Caviar in Cayman Islands attempting to avoid US regulations while operating from Massachusetts

• §  Offered unregistered "Caviar tokens" claiming to provide exposure to both crypto and real estate investments

• §  Investigation found inadequate screening procedures that allowed US residents to participate despite claims of excluding them

• §  In an administrative complaint dated January 2018, the state of Massachusetts sought a permanent cease and desist order to stop Caviar from violating securities laws, censure of both Caviar and Bensonoff, rescission to all investors, and financial remedies

• o   AirFox (CarrierEQ):

• §  AirFox conducted an unregistered Initial Coin Offering (ICO) in 2017, raising approximately $15 million from over 2,500 investors by selling AirTokens while making claims about future profits and development

• §  In a consent order dated November 2017, the company was ordered to register AirTokens as securities, offer rescission to investors, pay a $100,000 fine to Massachusetts, and file proper documentation for any future securities offerings

• §  The order highlighted that despite AirFox claiming the tokens were utilities, they were actually investment contracts since investors bought them expecting profits from AirFox's managerial efforts

Galvin’s office has sought to inform investors and consumers looking to invest on the crypto market. The Securities Division issues mid-year newsletters regularly mentioning its stance on crypto enforcement, and mostly recently, has issued a Bitcoin Investor Alert following the SEC’s recent approval of spot bitcoin exchange-traded products.

How Dynamis Can Help

At Dynamis LLP, we specialize in navigating the complexities of crypto-asset 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. We have offices in Boston, New York and Miami, but we litigate all disputes nationwide. 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..