SEC accuses crypto lending platform of fraudulent offer – Corporate / Commercial law


United States: SEC charges crypto lending platform with fraudulent offer

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The SEC has accused an online crypto lending platform, its founder, its main promoter and its company (collectively, the “defendants”) of making a fraudulent and unregistered securities offer of $ 2 billion.

In a complaint filed with the U.S. District Court for the Southern District of New York, the SEC alleged that the platform founder paid a commission to the platform’s main promoter to publicize the opportunity to essentially lend. the Bitcoin platform. The SEC said the defendants (i) falsely stated that the platform used a “software volatility trading robot” that would provide investors with returns greater than 40% per month and (ii) published false documents implicating that platform returns averaged around 1%. per day, which would represent nearly 3,700% per year. The SEC claimed that the defendants knew that such claims were false and that the platform and its founder moved investor funds to digital wallet addresses owned by the founder, the main promoter and the promoter’s network.

The SEC described a “Ponzi-type” program in which the platform and its founder used some of the funds from new investors to fund withdrawal requests from previous investors. In addition, the SEC said that in addition to the commission, the platform and its founder paid the main promoter additional amounts that were not publicly disclosed, and that the platform founder has actively tried to prevent disclosure of payments to investors and potential investors. In total, the SEC found that the platform and its founder raised around $ 2 billion from investors and paid nearly $ 24 million to the main promoter and his company.

The SEC charged the defendants with violations of Section 10 (b) (“Regulating the Use of Manipulative and Deceptive Devices”) of the Exchange Act, SEA Rule 10b-5 (“Use of Manipulative and Deceptive Devices”) manipulative and deceptive ”) and sections 5 (a) (“ Sale or delivery after sale of unregistered securities ”) and 5 (c) (“ Need to file a registration statement ”) of the Securities Act. Further, the SEC charged (i) the primary promoter’s company with violating Sections 17 (a) (1) and 17 (a) (3) (“Use of Interstate Commerce for the Purpose of Fraud or Deception “), (Ii) the main promoter and its company with violations of section SEA 15 (a) (” Registration of all persons using exchange facilities to conduct transactions; exemptions “) and (iii) the platform -form, its founder and the main promoter with violations of section SA 17 (a). The SEC seeks (i) an injunction, (ii) restitution plus interest and (iii) civil penalties.

In a related action, the main promoter pleaded guilty to conspiracy to commit electronic fraud and criminal forfeiture for his involvement in the fraudulent offer.

In an investor newsletter, the SEC alerted investors to warning signs of fraudulent investment programs, including (i) high return guarantees, (ii) unregistered or unlicensed sellers, (iii) representations of rapid and significant returns on investment and (iv) testimonials on social networks.

Primary sources

  1. SEC Press Release: SEC Charges Global Crypto Lending Platform, Senior Executives with $ 2 Billion Fraud
  2. SEC Complaint: BitConnect, Satish Kumbhani, Glenn Arcaro and Future Money Ltd.
  3. DOJ Press Release: BitConnect Director and Promoter Pleads Guilty to $ 2 Billion Global Cryptocurrency Scheme
  4. SEC Investor Alert: Scams on Digital Assets and “Cryptic” Investments

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