SEC Sues Cryptocurrency Promoters Behind 2B Bitconnect Scheme

Five individuals now face the wrath of the Securities and Exchange Commission (SEC) by promoting digital asset securities without a license.

By
Chung Yee
on
May 29, 2021
Category:
Blockchain News

Non-Compliance to Securities Law

The suit was filed in the U.S. District Court of the Southern District of New York. BitConnect managed to raise more than $2 billion from retail investors without complying with the necessary regulatory requirements. 

Lately, the Chair of the SEC, Gary Gensler has raised concerns regarding ‘bad actors’ that are flouting the regulation in the crypto space. Citing investor protection as a priority, the top regulator vowed to take stern actions to prevent unwary investors from falling victim. 

Complaints have been piling on an infamous crypto scheme that has been touted as a Ponzi. Bitconnect is a lending platform that allows participants to gain high interest through a scheme that is dubious and misleading. BitConnect described itself as an open-source and community-driven platform that is designed to provide multiple investment opportunities. 

The BitConnect platform also has its own native token with the marker BCC. The token allows the owners to store and invest their wealth. As of January 3, 2018 the price of a single BCC token was $426 with a market capitalization of $4.1 billion. 

Source

On January 4, 2018, the State of Texas Securities Board issued a cease and desist order for being in violation of securities law. The regulation revolves around assets classified as securities that require registration. Over and above the issue of non-compliance, two other important allegations made against BitConnect are the issue of fraud and the use of misleading and deceiving statements to the public.  

BitConnect was also given a notice of striking off in November 2017 by the Registrar of Companies in the United Kingdom. 

 

Soliciting Investment for Commission

In the 2017 ICO frenzy, we saw many influencers promoting certain tokens to their followers through their respective social media platforms. One of the individuals sued by the SEC is Trevon James. Trevon was interviewed by Coffeezill in January 2021, a famous YouTube channel exposing frauds and scams of his involvement with BitConnect.  

Many unsuspecting individuals sourcing information from social media will definitely stumble upon self-proclaimed ‘crypto gurus’. These individuals have a huge influence on social media and are capable of leveraging their position to introduce and promote certain projects for commission. Sophisticated investors are not exposed to this risk, unlike ordinary retail investors. 

Sophisticated investors, in particular institutions, are often guided by a set of internal protocols and due diligence processes. They have their panel of advisers and are often in a much better position to make informed decisions. However, this is not a luxury to the masses. Many investors do not understand that there is no shortcut. A project that promises dubious returns without a solid project and has no recognizable utility cannot generate positive cash flow. The role of regulators is to eliminate these scourges.    


Do Your Own Research (DYOR)

An investor cannot count on regulators to act immediately on frauds and scams. When these scams are discovered, losses have taken place. Therefore the best way to prevent being a victim of these scams is to take extra caution. Investors cannot presume due to compliance. 

Steps must be taken to ensure that the project has the necessary audit or is registered with the relevant authorities. Secondly, a project that is sustainable typically has a present and innovative utility. Without utility, promises couched on adjectives are vague and misleading. Finally, the team that runs the project must be recognizable figures in the industry with credible track records. These are the general steps that many dismiss as overly cumbersome and time-consuming.


Irreparable Public Harm

The steps taken by the SEC are definitely a welcomed move. The regulators must act against those who have irresponsibly promoted crypto projects by giving information that is false or misleading. The harm to the public can be widespread depending on the size of the scheme. Regulated and licensed platforms for crypto participation are readily available through the likes of licensed exchanges, Exchange Traded Funds (ETF), and licensed fund management companies.

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Chung Yee

Chung Yee has a legal background and has been involved in research works for the legal and compliance industry. Writing is his passion, centered on topics such as the blockchain and finance.

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