(Bloomberg) -- In the waning days of 2022, a month after the collapse of FTX, federal prosecutors filed eight charges against Sam Bankman-Fried, the face of the bubble-like crypto industry. Four of them involved wire fraud.

Manhattan US Attorney Damian Williams was able to act quickly because he relied on a law passed in the 1950s, decades before the advent of the internet, email and the world of digital currencies. Wire fraud, which applies when any form of electronic communication is used, has become the weapon of choice to hone in on crypto crime as the debate over whether crypto currencies are securities plays out in court.

Prosecutions built around wire fraud as the most serious charge — which include cases against Bankman-Fried and Theranos Inc. founder Elizabeth Holmes — have reached an all-time high even as overall white-collar crime cases have dropped. In 2023, prosecutors used wire fraud in more than 1,300 instances, up from about 900 in 2016, according to Justice Department data compiled by Syracuse University. That corresponds with a flurry of crypto cases last year, including prosecutions linked to the collapse Celsius Network LLC.

The government is using mail and wire fraud laws to fill in loopholes where there are no existing statutes or regulations, said Samuel Buell, a professor at Duke University Law School and a former federal prosecutor.

“Regulators are fighting about where crypto fits, but while that’s going on, you can’t have a bunch of people exploiting that gap to commit fraud,” he said. “That’s where the mail and wire fraud statutes come in.”

Bankman-Fried, the 32-year-old FTX co-founder, is scheduled to be sentenced on Thursday following his October conviction for his role in the collapse of the cryptocurrency exchange. Prosecutors have recommended he get 40 to 50 years in prison, while his attorneys have asked for 6 1/2 years or less. 

Coinbase, OpenSea

Williams has used the law against others accused of misconduct with digital assets, such as a former employee of digital token marketplace OpenSea and a former manager of the cryptocurrency exchange Coinbase Global Inc., both of whom received prison time for trading on confidential information.

Bankman-Fried’s sentencing comes as the US Securities and Exchange Commission has had mixed results attempting to classify digital assets as securities. In what’s been seen by many as a loss for the agency’s jurisdiction, a federal judge ruled last year that sales of Ripple Labs’ XRP token to retail investors on exchanges didn’t amount to investment contracts. But another judge that same month reached the opposite conclusion in the regulator’s case against Terraform Labs Pte. A trial in that case began Monday.

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Wire fraud charges are “incredibly powerful,” and provide advantages that other laws don’t simply because of the statute’ breadth, said Sarah E. Paul, co-global head of corporate crime and investigations at Eversheds Sutherland and a former prosecutor in the Southern District of New York, who cited the OpenSea case as an example.

Prosecutions of white-collar crime — which include securities fraud, antitrust violations and other illegal activity — have declined more than 56 percent over the last 20 years and reached a new low in the 12 months ending Sept. 30, 2022, according to data from a Syracuse University project that monitors trends in federal law enforcement. While there was a slight uptick in the last fiscal year, that number has declined in nearly every year since hitting a two-decade high in 2011. 

The rise of wire-fraud charges coincides with the “crypto winter” of late 2022, when Bitcoin plunged to a two-year low of $15,485. Crypto markets have rebounded dramatically over the last year and a half. Bitcoin has surged more than 360% from its low in the wake of FTX’s bankruptcy in November 2022 and earlier this month it climbed to a new record of $73,798, according to data compiled by Bloomberg.

At least one judge has recognized the power of mail fraud statutes — a close cousin of wire fraud — for decades. US District Judge Jed Rakoff, who was nominated to the bench in 1995, wrote a paper back in 1980 calling it the “true love” of prosecutors.

Colt .45, Louisville Slugger

“To federal prosecutors of white-collar crime, the mail fraud statute is our Stradivarius, our Colt .45, our Louisville Slugger, our Cuisinart — and our true love,” Rakoff wrote in the Duquense Law Review. “We may flirt with other laws and call the conspiracy law ‘darling,’ but we always come home to the virtues of the mail fraud statute.”

The law is “more versatile,” as it allows prosecutors in many cases to avoid having to address obstacles under other legal theories, such as proving that a cryptocurrency is a security, said Jill E. Fisch, a professor of business law at the University of Pennsylvania Carey Law School. Fisch pointed to a 1987 insider-trading case involving leaked tips from a Wall Street Journal column, in which the Supreme Court upheld a wire fraud conviction but was divided on whether the conduct violated securities law.

“The world of financial fraud has gotten more complicated,” Fisch said. “There are new instruments and there are new ways of committing fraud. Historically, not just right now, prosecutors have used the wire fraud statute in those periods of uncertainty or transition.”

Richard N. Wiedis, a partner with Diaz Reus in Washington, said that wire fraud was “perfectly designed to cover a basic scheme like the executives at FTX were running.”

“Why go into securities fraud or bank fraud when you’ve just got basic stealing?” said Wiedis, who was previously an assistant US Attorney in the Justice Department’s Fraud section.

--With assistance from Michael P. Regan.

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