Syed Rahman and Ulrich Schmidt detail the action taken so far by the UK’s Serious Fraud Office in its first notable crypto case.
The Serious Fraud Office (SFO) has announced the start of its first major crypto investigation.
It has appealed for investors to come forward with any information they may have about the collapse of a $28 million (£21.4 million) cryptocurrency scheme called Basis Markets.
The SFO has carried out raids in West Yorkshire and London in relation to what it suspects was a fraudulent scheme. SFO investigators, supported by the Metropolitan Police and West Yorkshire Police, searched properties and arrested two men on suspicion of multiple fraud and money laundering offences.
According to the SFO, Basis Markets raised the $28 million through two public fundraising operations. One was conducted in November 2021, through the sale of non-fungible tokens (NFTs), and the other was held the following month.
The funds raised were used to create what the SFO has referred to as a “crypto hedge fund”. But in June 2022, those who had invested in Basis Markets were told that the project could not go ahead as planned, due to proposed new US regulations.
First
With the case being the first sizeable crypto-related one the SFO has taken on, the agency’s director, Nick Ephgrave, made it clear that it could be the first of many.
He said: “With our expanding cryptocurrency capability and growing expertise in this area, we are determined to pursue anyone who would seek to use cryptocurrency to defraud investors.”
Solicitor General Ellie Reeves MP said she would “resolutely support the Serious Fraud Office to tackle the scourge of cryptocurrency fraud and protect consumers.’’
The SFO taking on crypto investigations signals a broader institutional shift to enforcing accountability in the digital asset space. The regulatory bodies have, for the last few years, attempted to align crypto innovation with consumer and investor protections. The investigation into Basis Markets shows investors that unregulated crypto experiments are not going to be as common as they have been. Regulated, compliance-orientated investment opportunities are now expected to be the norm.
It remains to be seen whether this will have negative effects on such investments. But overall, from a legal perspective, such increased compliance can only be a positive.
There may be some eyebrows raised about it taking until now for the SFO to commence its first major crypto investigation. But institutional change requires institutional understanding first. A lot of regulatory learning has to be acquired to support investigations. This understanding has increased within the SFO, as its director has made clear. And it has also been the case that the crypto market has contained investors and consumers that were less than willing to disclose their involvement, which has not made it easy for the authorities to begin investigations.
