The SEC charged an online crypto lending platform, its founder, and its leading promoter and his company (collectively, the "Defendants") with carrying out a $2 billion fraudulent, unregistered securities offering.
In a Complaint filed in the U.S. District Court for the Southern District of New York, the SEC alleged that the platform's founder paid a commission to the platform's leading promoter to publicize the opportunity to essentially lend the platform Bitcoin. The SEC stated that the Defendants (i) falsely represented that the platform used a "volatility software trading bot" that would provide investors with returns upwards of 40 percent per month and (ii) published fake documents that implied the platform's returns averaged approximately one percent per day, which would amount to nearly 3,700 percent annually. The SEC asserted that the Defendants were aware that such claims were false, and that the platform and its founder transferred investor funds to digital wallet addresses belonging to the founder, the leading promoter and the promoter's network.
The SEC described a "Ponzi-like" scheme in which the platform and its founder used some of the newer investors' funds to finance withdrawal requests from earlier investors. In addition, the SEC stated that on top of the commission, the platform and its founder paid the leading promoter additional amounts that were not publicly disclosed, and that the platform's founder actively tried to prevent disclosure of the payments to investors and potential investors. In total, the SEC found that the platform and its founder raised approximately $2 billion from investors and paid nearly $24 million to the leading promoter and his company.
The SEC charged the Defendants with violations of Section 10(b) ("Regulation of the Use of manipulative and deceptive devices") of the Exchange Act, SEA Rule 10b-5 ("Employment of manipulative and deceptive devices"), and Sections 5(a) ("Sale or delivery after sale of unregistered securities") and 5(c) ("Necessity of filing registration statement") of the Securities Act. In addition, the SEC charged (i) the leading promoter's company with violations of SA Sections 17(a)(1) and 17(a)(3) ("Use of interstate commerce for purpose of fraud or deceit"), (ii) the leading promoter and his company with violations of SEA Section 15(a) ("Registration of all persons utilizing exchange facilities to effect transactions; exemptions") and (iii) the platform, its founder and the leading promoter with violations of SA Section 17(a). The SEC is seeking (i) injunctive relief, (ii) disgorgement plus interest and (iii) civil penalties.
In a related action, the leading promoter pled guilty to DOJ charges of conspiracy to commit wire fraud and criminal forfeiture for his involvement in the fraudulent offering.
In an investor bulletin, the SEC alerted investors to warning signs of fraudulent investment schemes, including (i) guarantees of high returns, (ii) sellers that are unregistered or unlicensed, (iii) representations of rapid and large investment returns and (iv) social media testimonials.
- SEC Press Release: SEC Charges Global Crypto Lending Platform and Top Executives in $2 Billion Fraud
- SEC Complaint: BitConnect, Satish Kumbhani, Glenn Arcaro, and Future Money Ltd.
- DOJ Press Release: Director and Promoter of BitConnect Pleads Guilty in Global $2 Billion Cryptocurrency Scheme
- SEC Investor Alert: Digital Asset and "Crypto" Investment Scams
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