Chris Allen:

Hello, I’m Chris Allen, a member of the Cozen O’Connor State Attorneys General Group and I’d like to welcome you to this special episode, which will be a sneak preview of season three of State AG Pulse. This season we’re going to be selecting one story from our curated weekly roundup of state AG news, the State AG Report, and we’re going to explore that story in greater detail to tease out some AG themes, and to provide new insights for our business audience.

Today I am very thrilled to be joined by my colleague, Emily Yu. Emily is an associate, she also worked in the Arkansas Solicitor General’s office and clerked at the US Circuit Court of Appeals for the eighth circuit. Emily, hey, how are you doing today?

Emily Yu:

I’m doing well. Thanks for having me, Chris.

Chris Allen:

Oh, anytime. I’m excited to talk about the story we have got for today because first of all, it’s bonkers. But besides being bonkers, it actually gets into a lot of the things that we’ve discussed over the last two seasons of our podcasts involving state attorneys general. So with that tantalizing introduction, Emily, can you tell us a little bit about what we’re going to be talking about today?

Emily Yu:

Sure. So today’s crazy story comes out of New Jersey. It involves both the AG’s office and the Bureau of Securities. So this story involves a character named Horatiu Charlie Caragaceanu. He goes by other names as most seedy characters do. And he runs two companies or alleged companies, one called the Shark of Wall Street and one called Hedge4.ai, which probably raises even more questions. So these two companies were supposedly selling crypto that was backed by AI, artificial intelligence, and algorithms allegedly developed by Elon Musk. And these companies and the individual that owns them claimed that Musk endorsed these cryptocurrencies, that other high profile tech personalities were also behind these cryptocurrencies. So I think it was the developers of Binance and Ethereum, all sorts of claims that basically every big name in tech and in crypto was supporting this magical unicorn of a cryptocurrency called TruthGPT coin, which also would lead a normal person to think of ChatGPT, but there is actually no relation there.

So these companies and this individual were basically riding the coattails of everyone who has ever done something with algorithms and crypto and tech and was telling consumers that they could make up to 1000 times return in profits based off of both TruthGPT coin; they also have a cryptocurrency called Elon Musk coin. They had launched previous cryptocurrencies that are currently worth nothing. So the Bureau of Securities in New Jersey and the AG’s office have issued a cease and desist order. To be determined whether or not TruthGPT coin is actually shut down. I think we were able to still access their site yesterday, so there may be some regulatory enforcement concerns there as well. But that was a long-winded way of saying this is as crazy of a story as you built it out to be.

Chris Allen:

Yeah, it’s almost like you could tell that the way that they were trying to target dupes is by picking every buzzword you possibly could get right now and throwing it at the wall, whether it’s ChatGPT or Elon Musk or crypto. But what’s really funny to me is that’s also the exact way to attract an AG’s attention. It’s like not just shooting one giant flare in the air, it’s shooting all of the flares.

Emily Yu:

Right, it’s like July 4th.

Chris Allen:

And it’s like the fact that the AG in New Jersey comes after these guys, and I should add the Bureau of Securities in New Jersey, New Jersey’s kind of a unique office, that’s actually part of the AG’s office. It sits under the division of Consumer Affairs, which ultimately sits under the AG’s office, although they all have their own administrators. But again, it’s like these guys are painting giant bulls eyes on themselves. The reason I really wanted to talk about this story was not just because it was bonkers like that, but I think it really does kind of, that fact that AGs are so into these issues and are really leading a lot of the conversations on these issues, is really what pops out of this.

In New Jersey, I know they’re not the only state that’s been looking at cryptocurrency rights. And one of the allegations they make in this complaint, which is really interesting to me, is the idea that crypto is a security. And that by itself is a whole huge debate, which, I know just enough about crypto to be dangerous so I’m not going to engage in that, but it’s not, Jersey’s not the only office that’s taken this position. I think just across the river, Letitia James in New York has basically taken enforcement of crypto to an entirely new level based on the idea that these are securities.

Emily Yu:

Yes. Actually, another story that’s included in this week’s blog is about a letter that is being headed up by Tim Griffin in Arkansas. I wasn’t actually there when he was there, but I’m still going to work my Arkansas ties when I can. Him, and I believe it was 12 other AGs have just submitted a comment to the SEC arguing that crypto should not be considered a security. So now you’re getting AGs from both sides of the aisle involved on the securities regulatory issues surrounding cryptocurrencies, whereas not very long ago, it really was just Tish James in the space and maybe a handful of other mostly Democratic AGs, if my memory serves me correctly.

Chris Allen:

Yeah, I think that’s right. I think that was because the way the state’s statutes are written, and as we’ve talked about before, every state’s statutes are different. All of these AGs have some discrete, they all generally enforce consumer protection laws, they all generally enforce antitrust and data privacy laws.

But then there are nuances. And so this story is kind of an example of that, where the New Jersey AG also has authority over securities. But it’s interesting that you brought up that letter by Arkansas and the other AGs, because it also shows the complexity of these topics. I mean, crypto, AI, which also pops up in this story and we haven’t even talked about yet, these are some of the most important cutting edge issues that generally our society is talking about. And it’s always fascinating to me how AGs can really get on the leading edge of these issues. Because it’s not like a federal FTC. You don’t need the vote of three commissioners to start an investigation. One person, the attorney general, can tell staff to issue a CID or a Civil Investigative Demand. And at the very least they can do what you’re talking about, which is to send comment letters to other regulators or use their bully pulpit either by themselves or in groups to try and influence these conversations.

Emily Yu:

Yes. And to piggyback off of AGs’ growing interest and concern with algorithms, that was a big talking point at the NAAG Symposium in Philadelphia that-

Chris Allen:

Where you were?

Emily Yu:

Yeah, where I had the privilege of sitting in and being a fly on the wall as AGs learned from a distinguished panel about what are algorithms and what ways can state governments use them, what should they be wary of? What consumer protection issues, traditional or non-traditional, are raised by algorithms and AI? And there were quite a few number of AGs and AG staff who really wanted to know, “Well, how concerned should we be really? What should we be doing? Should we be investigating? Should we just sit back and see how this plays out?”

Chris Allen:

I don’t actually think about one on either side of the aisle that’s ever actually done that. And for good reason too, because they’re being asked, they are the preeminent consumer enforcers in this country. That’s their duty is to protect them, and they take that job very, very seriously. And the nimbleness and flexibility they have is really, it’s challenging for companies and it’s something you have to be aware of. The reason that they’re able to do this is these statutes that they enforce are so broadly written, on purpose, to allow them to [do] these things, to allow them the flexibility and a lot of UDAPs date back to the 70s. Like computers back then, were still the size of cars, I think. I don’t know. I wasn’t there. I’m not that old.

Emily Yu:

Neither was I, for the record. I was alive during dial up. I remember sitting in my parents’ kitchen and…

Chris Allen:

The shriek?

Emily Yu:

… Yes. But yeah, to go off of your last point about the UDAP statutes, I think another part of this New Jersey story that is so interesting is that this is all under the state securities law, which there obviously were a lot of false advertising and misleading marketing practices that were done by these crypto companies and by their owner. But at the end of the day, the basis for this cease and desist order was citing back to the state securities laws. So even though state UDAP statutes are so broad, it is always interesting to see them bring enforcement actions under other state laws that maybe aren’t used as often.

Chris Allen:

That’s a great point. I do think there’s a converse to that though, which is that when you don’t have this authority, just because an AG might not have securities authority like we hinted at earlier, doesn’t mean that they wouldn’t use their UDAP statute if they really thought this was a problem. The penalties you can get in a UDAP case are just astounding. I mean, up to thousands of dollars per impacted consumer.

Emily Yu:

Right. I don’t think there was any type of dollar amount attached to this cease and desist order. And I don’t think we actually have seen the cease and desist order here enforced yet, but it’ll be interesting to see when other states take action against folks who are using the names of crypto and AI and algorithm to dupe customers, what those dollar amount penalties will come out to be. It’ll also be interesting to see what other states get in on this, and what those implications might be for those companies that are on the receiving end of some nasty grams from the AGs about crypto and AI.

Chris Allen:

Yeah, totally agree. And I think one thing that we want to make sure our listeners understand is there are takeaways here for legitimate companies too. Those technologies, blockchain is still out there, algorithmic decision making is still out there. Everybody is talking about how AI can be harnessed to increase efficiencies, and there are legitimate businesses out there that are going to be trying to grow themselves, trying to enter new arenas. And one of the things they’re going to have to keep in mind is that if the AGs think everybody in this space, I’m not saying they would, but if they start getting the impression this is a space ripe with fraud, they’re going to be that much more vigilant policing this under whatever laws they decide to use.

Emily Yu:

Exactly. I can see this very easily becoming the next wave or the next phase of AGs’ interest in big tech. So maybe now we’re not talking about the big name tech companies anymore. We’re looking more to how maybe smaller companies, newer companies are using technologies that have caught their attention. So I think AG interest in the tech space definitely isn’t going away. I think if anything, it’s expanding and it’s focusing in on newer technologies that maybe AGs and their offices are just now getting a better idea of what those companies are up to and how they can really impact consumers.

Chris Allen:

Well, I can’t top that as a closing thought. So Emily, this was really fun talking to you. We could keep going, I’m sure, but we’re trying to keep these a little briefer for our listeners. So thank you again so much for bringing this story to my attention. Thanks for talking to me today. To all our listeners, we hope you enjoyed this as much as we did talking about it, and we look forward to having you on the next episode of State AG Pulse.