The DOJ's Strategic Enforcement in Crypto: Implications for Retail Investors and Due Diligence Requirements

The U.S. Department of Justice (DOJ) has undergone a significant realignment of its cryptocurrency enforcement strategy, shifting focus from regulatory overreach to prosecuting individuals who cause financial harm to investors or use digital assets for criminal enterprises. This policy, outlined in Deputy Attorney General Todd Blanche's April 2025 memorandum titled "Ending Regulation by Prosecution," signals a departure from prior practices of leveraging criminal charges to enforce regulatory compliance in the crypto space. For retail investors, this shift carries profound implications: while it reduces ambiguity in the legal landscape, it also underscores the critical need for rigorous due diligence in an ecosystem still rife with fraudulent actors.

Federal Statutes and Enforcement Priorities

The DOJ's new approach prioritizes statutes targeting financial misconduct and criminal misuse of digital assets. Prosecutors are now instructed to avoid litigating whether a digital asset qualifies as a "security" or "commodity" unless necessary, and to refrain from pursuing charges related to securities registration or unlicensed money transmission unless there is clear evidence of willful misconduct. According to the DOJ's guidance, enforcement actions increasingly rely on laws such as the Bank Secrecy Act (18 U.S.C. §1960), federal tax codes, and anti-fraud statutes like the RICO Act.

Recent cases illustrate this focus. In Q4 2025, the DOJ secured a deferred prosecution agreement with Roger Ver for tax evasion related to unreported capital gains on his bitcoin holdings, resulting in a $50 million settlement. Similarly, Chen Zhi, chairman of Cambodia's Prince Group, faced wire fraud and money laundering charges tied to forced-labor compounds operating crypto investment schemes, with the DOJ seeking to forfeit 127,271 bitcoin-valued at $15 billion-marking the largest forfeiture in DOJ history. These cases highlight the DOJ's emphasis on holding individuals accountable for direct financial harm to investors, rather than prosecuting platforms for user actions.

Implications for Retail Investors

While the DOJ's strategy reduces regulatory uncertainty, it does not eliminate risks for retail investors. Smaller crypto operators, often lacking the resources to navigate complex compliance frameworks, remain vulnerable to exploitation by bad actors. For instance, the DOJ's indictment of Ramil Ventura Palafox, CEO of Praetorian Group International, revealed a Ponzi scheme defrauding 90,000 global investors, falsely claiming to engage in bitcoin trading. Such cases underscore that even as the DOJ avoids regulatory overreach, fraudulent schemes persist, particularly in decentralized or unregulated markets.

The formation of the DOJ's Scam Center Strike Force in November 2025 further signals a commitment to combating large-scale fraud, including "pig butchering" scams that defraud Americans of nearly $10 billion annually. However, retail investors must recognize that enforcement actions are reactive, not preventive. The burden of due diligence remains squarely on individual investors, who must now navigate a landscape where regulatory oversight is less pervasive but criminal enforcement is more targeted.

Investor Due Diligence in a Post-Regulation-By-Prosecution Era

The DOJ's policy shift demands a recalibration of investor due diligence practices. Key considerations include:
1. Project Legitimacy: Investors should scrutinize the track record of project founders, governance structures, and transparency in fund management. The DOJ's focus on embezzlement and misappropriation of customer funds (e.g., Shengsheng He's 51-month prison sentence for laundering $36.9 million in stolen assets) highlights the risks of opaque operations.
2. Legal Compliance: While the DOJ avoids prosecuting platforms for user actions, investors must verify whether operators adhere to anti-money laundering (AML) and know-your-customer (KYC) protocols. Platforms that ignore these measures may still attract criminal scrutiny.
3. Red Flags: The DOJ's emphasis on criminal misuse of digital assets-such as fentanyl trafficking or terrorism financing-means investors should avoid projects with ties to illicit activities or those that lack clear use cases.

Conclusion

The DOJ's realignment of crypto enforcement priorities reflects a broader effort to foster innovation while protecting investors from fraud and criminal exploitation. However, this shift does not absolve retail investors of responsibility. As the DOJ dissolves the National Cryptocurrency Enforcement Team and redirects resources toward criminal prosecutions, the onus falls on individual investors to conduct thorough due diligence. In an ecosystem where regulatory clarity is evolving, vigilance remains the best defense against the persistent risks of smaller, less transparent operators.