Topline
The Securities and Exchange Commission has filed a lawsuit against five people for allegedly promoting BitConnect digital asset securities without proper registration, raising over $2 billion from retail investors.
LONDON, UNITED KINGDOM - 2021/05/12: In this photo illustration, a person holds a collection of ... [+]
Key Facts
From about January 2017 to January 2018, BitConnect, an open-source cryptocurrency, used a network of promoters to market and sell securities in its "lending program" without registering the offering through the agency, the SEC said in a complaint filed in the U.S. District Court for the Southern District of New York.
Four U.S.-based promoters — Trevon Brown (a.k.a. Trevon James), Craig Grant, Ryan Maasen and Michael Noble (a.k.a. Michael Crypto) — failed to register as broker-dealers with the SEC, as required by the federal securities laws.
The promoters, who advertised BitConnect's lending program on various "testimonial" style videos that appeared frequently on YouTube, received commissions based on their ability to solicit investor funds.
A fifth defendant, Joshua Jeppesen, was charged with aiding and abetting BitConnect's unregistered offer of securities by serving as a liaison between BitConnect and the promoters, while representing BitConnect at conferences and promotional events.
Crucial Quote
"We will seek to hold accountable those who illegally profit by capitalizing on the public's interest in digital assets," said Lara Shalov Mehraban, associate regional director of SEC's New York Regional Office.
Key Background
BitConnect, which debuted in 2016, closed its primary lending platform in early 2018 after state securities regulators warned investors of the “Ponzi-type nature" of the enterprise. At its peak BitConnect had a market cap of more then $2.6 billion and the coins reached a price as high as $400, tech news site NextWeb.com reported. Investors were promised a 1% return of investment on a daily basis, according to BitConnect’s website – which meant that a $1,000 initial investment would mushroom into $50 million in three years. One of BitConnect’s earliest naysayers was Ethereum founder Vitalik Buterin who condemned it as a “Ponzi scheme” in November 2017. Nonetheleless, BitConnect attracted more interest partly through its aggressive marketing program, which included digital and event marketing strategies as well as marketers tasked with finding new investors. In late 2017, the British Registrar of Companies threatened to dissolve BitConnect, followed shortly thereafter by a letter from the Texas Securities Board and the North Carolina Securities Division ordering the company to shut down its operation. The North Carolina agency also alleged promoters of BitConnect were acting illegally.
What We Don’t Know
While the SEC said it is seeking “injunctive relief, disgorgement plus interest, and civil penalties” in the litigation, it did not specify financial punishment.
Further Reading
Bitcoin Bounces Back From Three Month Low As Elon Musk Denies Tesla Has Sold Its Crypto Assets (Forbes)
Tesla Will Stop Accepting Bitcoin As Payment Due To Environmental Worries, Musk Says (Forbes)
