If lawmakers had a dollar for every loophole they accidentally create, they’d probably be richer than the fraudsters they’re supposed to be chasing. And in the case of crypto, those loopholes might soon become gaping holes.
In this publication, we’re looking at a brewing storm in the US: a new market-structure bill that could unintentionally weaken the fight against crypto fraud—just as scams and hacks are hitting record highs.
The Short Version:
State regulators warn that a new Senate bill could strip them of the authority to pursue crypto fraudsters, leaving everyday investors more vulnerable than ever.
How It Works:
- Federal enforcement against crypto has slowed dramatically, with the SEC launching fewer cases than at any point since 2017.
- The proposed Responsible Financial Innovation Act reshapes how digital assets are regulated but doesn’t explicitly give states authority to prosecute crypto companies.
- It also changes the definition of “investment contract,” creating potential loopholes that defense lawyers could exploit.
- Translation: states may not be able to chase fraudsters, while federal regulators are pulling back.
Who’s Targeted:
Everyday investors who jump into digital assets—often chasing hype and “get rich quick” promises—are left exposed. States like Montana and Alabama are already seeing spikes in complaints, from retirees to casual traders who don’t fully understand what they’re buying.
A Real-Life Example:
Montana’s state auditor, James Brown, said crypto complaints in his office have more than doubled this year. He warns that with investor demand soaring and scams multiplying, “the dam is going to break” if regulators can’t act.
Why You Should Care:
When enforcement weakens, fraud thrives. Criminals are already exploiting soaring crypto prices, with $2.1 billion stolen in hacks and scams in the first half of this year alone—the worst six-month stretch on record. If state authorities lose their bite, local victims may have nowhere to turn.
How to Protect Yourself:
- Don’t assume government agencies are actively monitoring every crypto investment opportunity—due diligence is on you.
- Be skeptical of projects that aren’t registered or licensed with any financial authority.
- Watch for buzzwords like “trading strategies” or “projects” that avoid specifics—these often mask scams.
- Diversify: never put more money in crypto than you can afford to lose.
- Stay informed on regulatory changes—laws affect your protections.
Quick Tips & Updates:
- Quick Tip: Did you know? Hacks and exploits typically spike when crypto prices are near record highs—criminals follow the money.
- Update: State regulators have proposed changes to the bill, but it remains unclear if Congress will include them. Until then, uncertainty is creating a gray area ripe for abuse.
Stay safe, stay informed,
Keywords & Definitions
- Crypto Fraud: Deceptive practices involving digital assets, usually designed to steal money from investors.
- Responsible Financial Innovation Act: A proposed US Senate bill aimed at regulating cryptocurrency markets and companies.
- SEC (Securities and Exchange Commission): The main federal agency that enforces securities laws and regulates markets in the US.
- Investment Contract: A legal term for certain types of investments that fall under securities law; how it’s defined determines what regulators can prosecute.
- Howey Test: A long-standing legal test used to decide whether an asset counts as a security under US law.
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