ANALYSIS: Treating Crypto Fraud as Consumer Scam Gains Traction

When a cryptocurrency exchange takes a customer’s money and runs, a state often treats the exchange as a fraudulent seller of securities, like Delaware’s Investor Protection Unit did in a September enforcement action. Occasionally, the fraudulent business is treated as a money transmitter, as in a March enforcement action in Arkansas. But a recent California regulatory order instead treated a cryptocurrency exchange like a consumer financial institution by finding it in violation of unfair and deceptive acts or practices (UDAP) law, being the first state to pursue an exchange under that theory alone.

On Oct. 17, California’s Department of ...