The U.S. Department of Justice has opened an investigation into the Digital Currency Group (DCG), one of the most prominent venture capital firms in the crypto space. According to a report from CoinDesk, DCG’s portfolio includes more than 100 companies that were subpoenaed by the U.S Attorney’s Office for the District of Connecticut which is looking into how those businesses are being run and whether or not they are operating in accordance with securities law. A spokesperson for Digital Currency Group told Coindesk that it had received a subpoena but did not provide details on which companies it was interested in or why they were being probed at all.
It’s not surprising that they could run afoul of some aspect of securities law, even inadvertently. With their portfolio of companies spanning the entire crypto space, it’s inevitable that at least some part of their business will eventually bump up against regulations designed to protect investors from getting ripped off by shady or fraudulent schemes.
Digital Currency Group Gets Investigated
Whether or not Digital Currency Group is guilty of violating securities laws remains to be seen. A lot depends on how you define what a security actually is and whether any particular cryptocurrency can qualify as one. And since cryptocurrencies are still so new and evolving, there isn’t yet clear consensus about what counts as a security and what doesn’t—leaving plenty of room for debate among regulators and legislators alike.
The main issue with this kind of prosecution is that it’s not clear how the DA’s office will decide what constitutes a security on a case-by-case basis. The law is so vague that even experts can’t agree on what qualifies, and there are no clear guidelines to follow.
As you might expect, the digital currency community has been outraged at the possible criminalization of their work. However, it’s worth noting that these sorts of vague regulations have already been used against other industries as well – think about all those legal battles over whether or not certain types of financial products (like derivatives) are actually securities!
