MSTR Cat

Crypto Law/Level VII · Loopholes worth understanding/7.3 Loopholes they sell you/Lesson 5

Unregulated is not the same as legal

Why a gap in registration or licensing rules is not permission to defraud, manipulate or move money without a licence, and the US cases that show where general laws still apply.

Education, not legal, tax or investment advice. Crypto law differs between countries and states and changes often. Check the current rules where you live with a qualified lawyer or tax adviser before you act.

The lean path

The cheapest, lowest-tax, simplest and most private route the law allows, best first. Each step names the rule it rests on and the condition that keeps it lawful.

  1. The lawful version of ‘unregulated’ is a licensed or registered provider; checking FinCEN’s money services business registry, SEC, CFTC, NFA BASIC and state regulator sites is free and takes minutes.
  2. Holding and moving your own coins needs no licence, since FinCEN does not treat users as money transmitters; transmitting others’ funds without required registration or licences risks five years under 18 U.S.C. §1960.
  3. ‘Not a security’ answers one question only: spot crypto fraud is still actionable by the CFTC under Rule 180.1 (CFTC v. McDonnell, 2018), and wire fraud carries up to 20 years under 18 U.S.C. §1343.
  4. Prefer providers that segregate customer assets and publish disclosures; in the EU, MiCA requires crypto-asset service providers to be authorised, so check the register before depositing.

MaterialsThe SEC staff Statement on Meme Coins (27 February 2025) on sec.gov17 C.F.R. §180.1, the CFTC’s anti-fraud and anti-manipulation rule18 U.S.C. §1343 (wire fraud) and §1960 (unlicensed money transmitting businesses)The US Attorney’s press release on KuCoin’s guilty plea (27 January 2025)

Wonder

  1. If no agency registers a token, can anything about it be illegal?
  2. Does an exchange based in another country have to follow US law?
  3. Which laws apply to crypto however it is classified?

Explore

  1. ‘Unregulated’ usually means that no agency requires a product to be registered or licensed, or that its rulebook was written for something else. It does not mean the law stops at the edge of the product. General laws on fraud, theft, manipulation, money laundering, sanctions, tax and consumer protection apply to conduct whatever the asset is called (lesson 1.2.7). The SEC staff’s Statement on Meme Coins of 27 February 2025 shows this: it said meme coins of the kind described are not securities, then added that fraud around them may still be pursued by other federal or state agencies under other laws (lesson 3.2.3).
  2. US spot crypto markets have no single federal registration regime, yet fraud in them is still policed. In CFTC v. McDonnell, decided on 6 March 2018, Senior Judge Jack Weinstein of the Eastern District of New York held that virtual currencies are commodities and that the Commodity Futures Trading Commission may sue over fraud in spot dealings, not only in futures. The tool is the CFTC’s Rule 180.1, which bars manipulative or deceptive devices in connection with any swap or contract of sale of any commodity in interstate commerce. The CFTC cannot license a seller of spot coins, but it can sue one who lies to customers.
  3. Criminal law reaches further still. The federal wire fraud statute, 18 U.S.C. §1343, covers any scheme to obtain money or property by false or fraudulent pretences, representations or promises using interstate wire communications, which include the internet. It carries up to 20 years in prison, or 30 years where a financial institution is affected. Prosecutors do not need to prove that a token is a security or a commodity; they must prove a scheme to defraud. That element has limits, and lesson 6.1.5 shows how hard it can be to prove a false statement in a market run by code.
  4. Running a crypto business without the licences that do exist is a crime in itself. Under 18 U.S.C. §1960, knowingly running an unlicensed money transmitting business is punishable by up to 5 years in prison, and FinCEN treats crypto exchangers as money transmitters (lesson 5.2.1). On 27 January 2025 Peken Global, the Seychelles company operating the KuCoin exchange, pleaded guilty in New York to one such count. Prosecutors said KuCoin did not require customers to give identifying information until at least July 2023. It agreed to forfeit $184.5 million, pay a fine of about $112.9 million and leave the US market for at least two years.
  5. Other layers add to the federal ones. State money transmitter licensing (lesson 5.2.2), state consumer-protection laws and New York’s BitLicense (lesson 1.3.6) all apply to activity that touches a state. Outside the US, the EU’s MiCA regulation requires crypto-asset service providers to be authorised (lesson 3.3.2). So a business can be outside one regulator’s rulebook and squarely inside several others. A finding that a token is ‘not a security’ answers one question only; it says nothing about whether the conduct is fraud, unlicensed money transmission or a sanctions breach (lesson 1.3.5). Lesson 7.3.3 describes a bitcoin seller convicted under §1960.
  6. For holders the point is practical. When a platform, token or opportunity is described as unregulated, ask who you could complain to and which law they would use. If the only answer is a prosecutor after a collapse, your protection is thin even though the conduct may be illegal, because unregulated products usually lack duties such as keeping customer assets separate or making disclosures (lesson 4.1.1). A practical check: search the operator’s name on the SEC, CFTC, FinCEN money services business registration and state regulator websites before sending funds, and treat ‘no licence needed’ as a claim to verify, not a reassurance.

Key facts

  • The SEC staff’s Statement on Meme Coins (27 February 2025) said fraud involving meme coins may still face action by other federal or state agencies.
  • In CFTC v. McDonnell (E.D.N.Y., 6 March 2018), the court held that virtual currencies are commodities and that the CFTC may pursue fraud in spot transactions.
  • CFTC Rule 180.1 prohibits manipulative or deceptive devices in connection with any swap or contract of sale of any commodity in interstate commerce.
  • The wire fraud statute, 18 U.S.C. §1343, carries up to 20 years in prison, or 30 years if the violation affects a financial institution.
  • Under 18 U.S.C. §1960, knowingly operating an unlicensed money transmitting business is punishable by up to 5 years in prison.
  • On 27 January 2025 the operator of KuCoin pleaded guilty to operating an unlicensed money transmitting business and agreed to forfeit $184.5 million and pay a fine of about $112.9 million.

Exercise nine, six, three, one

9CollectList up to 9 crypto products, platforms or tokens you know of that are described as unregulated, offshore or ‘not a security’ (some lists are shorter).
6ClusterSort them into 6 categories by the law that could still apply: fraud, market manipulation, money transmission, sanctions, tax, and state or foreign licensing.
3DistillReduce the 6 to 3 groups: rules that protect you before anything goes wrong, rules that only punish after harm, and rules you are unsure apply.
1CrystallizeWrite 1 sentence explaining the difference between an activity that no agency licenses and an activity that is legal.

Fact check

Dates, figures and claims checked against the published sources listed below.

Open in the interactive academy →

PT ES ZH JA KO RU DE FR MS