The U.S. Financial Services Authority fined an early stage startup for engaging in an unauthorized money transfer program and later announced a second case against the same company. One of the alleged offenses involved the launch of a digital currency mixer, or a process by which a buyer and seller enter into a contract to exchange cash and/or currency for one another’s digital currency without involving any currency directly. In a complaint filed by the FSA, the SEC charged the company with engaging in unlawful conduct, which included the following:
At a press conference, the Financial Services Authority (FSA) noted that the agency had fined one of its own investigators, Edward C. Felberbaum, $1.2 million for “unauthorized transactions,” including the one cited above. The Financial Consumer Agency also accused Felberbaum of violating the agency’s anti-money laundering provisions by failing to establish reasonable safeguards to guard against money laundering. The charges against him were based on his failure to conduct adequate due diligence on a digital currency mixer provider. According to the FSA, his failure resulted in him facilitating the transfer of nearly six hundred thousand dollars from customers to the digital currency mixer provider without first conducting adequate due diligence.
In a statement, Digital Currency Group confirmed that it had terminated its relationship with Felberbaum, and that the company is “committed to conducting its business in compliance with all applicable laws and regulations.” According to the SEC, Felberbaum failed to perform adequate research or obtain relevant information regarding digital currency mixing services before launching the company. Digital Currency Group further acknowledged that, as a result of his lack of diligence, he provided investors and potential clients with false assurances of their safety and soundness. Additionally, the company admitted that he did not establish reasonable controls to prevent or detect unauthorized transfers of funds by the customers and/or the mixer. In addition, it is alleged that Felberbaum knowingly provided customers with false assurances of security and privacy.
Although Digital Currency Group’s board of directors has determined that the issues related to the first case with the FSA have been resolved, it is continuing to investigate whether or not it can avoid enforcement actions in future cases. According to a statement issued by its board on Thursday, “If the company determines that its systems were violated in any way, or we are unable to verify that our systems are not being violated, Digital Currency Group will discontinue operation of those systems until we can verify that they are not in violation.”
The FSA’s complaint against Digital Currency Group was filed as a civil money penalty, which requires the company to pay a monetary penalty to the government in return for the penalties it has agreed to pay to the SEC. As a result of the complaint, Digital Currency Group will have to cease its practice of money laundering, and other money laundering activities. This also includes a requirement for the company to conduct periodic training and outreach activities to educate both existing and potential clients on the proper use and application of its products. The new case against the company will require the company to conduct a further investigation into the activities and practices of other digital currency companies.
In a statement, the agency indicated that it would continue to enforce the laws and regulations of the financial market “to help protect the American consumer from financial criminals.” The agency has continued to remind the public that it is “now operating under a new regime, which will make enforcing the laws of this industry more difficult, if not impossible.” According to the FSA, “The fact that we have been successful in obtaining significant penalties in one of these cases is a victory for the protection of the financial system, but we will not stop here. We will continue to fight for the financial system of the United States of America and for the public’s right to enjoy the benefits of sound financial practices.”