Feb 25, 2018 | Shareholder & Investor Protection
Be Aware Of and Avoid Pump-and-Dump Schemes That Can Occur in Thinly-Traded or New Virtual Currencies, Digital Coins or Tokens
Do Not Purchase Virtual Currencies, Digital Coins or Tokens Based on Social Media Tips or Sudden Price Spikes – Thoroughly Research Virtual Currencies, Digital Coins, Tokens, and their Related Companies or Entities
On February 15, 2018, the Commodities Futures Trading Commission announced the issuance of its first Customer Protection Advisory warning customers to beware of, and avoid, pump-and-dump schemes than can occur in thinly traded or new “alternative” virtual currencies, digital coins or tokens.
According to the CFTC’s announcement and Customer Protection Advisory, pump-and-dump schemes are mostly anonymous and are organized in public chat rooms or via mobile messaging apps. The pump-and-dump schemes are coordinated efforts to create phony demand (the “pump”) before quickly selling (the “dump”) to profit by taking advantage of traders who are unaware of the scheme. This type of market manipulation occurs in the largely unregulated cash market for virtual currencies and digital tokens, and, typically, on platforms that offer a wide array of coin pairings for traders to buy and sell.
While pump-and-dump scams are not new, the number of new virtual currency and digital coin traders has grown substantially, increasing the number of potential victims or unwitting perpetrators.
Customers should avoid purchasing virtual currency or tokens based on tips shared over social media. The organizers of the scheme will commonly spread rumors and urge immediate buying. Victims will commonly react to the currency’s or token’s rising prices, and not verify the rumors. The dump then begins, the price falls, and victims are left with currency or tokens that are worth much less than what they expected in a scam which can be over in a few minutes.
“As with many online frauds, this type of scam is not new – it simply deploys an emerging technology to capitalize on public interest in digital assets,” said CFTC Director of Public Affairs Erica Elliott Richardson. “Pump-and-dump schemes long pre-date the invention of virtual currencies, and typically conjure the image of penny stock boiler rooms, but customers should know that these frauds have evolved and are prevalent online. Even experienced investors can become targets of professional fraudsters who are experts at deploying seemingly credible information in an attempt to deceive. The CFTC encourages all customers to thoroughly research potential investments, stay informed about tactics commonly used in investment fraud, and avoid investment opportunities they don’t fully understand.”
The best protection for customers, according to the CFTC, is to only purchase alternative virtual currencies, digital coins, or tokens that have been thoroughly researched. Further, it is important to remember:
Not to purchase digital coins or tokens because of a single tip, especially if it comes over social media.
Not to believe ads or websites that promise quick wealth by investing in certain digital coins or tokens.
Not to participate in pump-and-dump trades; market manipulation is against the law and many participants end up losing money.
NOTE: There is no such thing as a guaranteed investment or trading strategy. If someone tells you there is no risk of losing money, do not invest.
Source: CFTC.gov
Feb 23, 2018 | Shareholder & Investor Protection
SEC Issues Trading Suspension Orders Against Cherubim Interests Inc., PDX Partners Inc., and Victura Construction Group Inc.
On February 16, 2018, the Securities and Exchange Commission announced that it suspended trading in Cherubim Interests Inc. (CHIT), PDX Partners Inc. (PDXP), and Victura Construction Group Inc. (VICT) over questions surrounding similar statements they made about the acquisition of cryptocurrency and blockchain technology-related assets.
The SEC’s trading suspension orders state that recent press releases issued by CHIT, PDXP, and VICT claimed that the three companies acquired AAA-rated assets from a subsidiary of a private equity investor in cryptocurrency and blockchain technology among other things. According to the SEC order regarding CHIT, it also announced the execution of a financing commitment to launch an initial coin offering.
The SEC’s trading suspension orders (Trading Suspension Order – CHIT; Trading Suspension Order – PDXP; Trading Suspension Order – VICT) state that there are questions regarding the nature of the business operations of CHIT, PDXP, and VICT and the value of their assets, including in press releases issued beginning in early January 2018. The SEC also suspended trading in the securities of CHIT because of its delinquency in filing annual and quarterly reports.
CHIT is a Nevada corporation with its principal place of business listed as Bedford, Texas with a class of securities registered with the SEC pursuant to Section 12(g) of the Securities Exchange Act of 1934. The stock of CHIT is quoted on OTC Link (previously “Pink Sheets”) operated by OTC Markets Group, Inc. under the ticker symbol CHIT.
PDXP is a Wyoming corporation with its principal place of business listed as Portland, Oregon, with stock quoted on OTC Link (previously “Pink Sheets”) operated by OTC Markets Group, Inc. under the ticker symbol PDXP.
VICT is a Wyoming corporation with its principal place of business listed as Bedford, Texas, with stock quoted on OTC Link (previously “Pink Sheets”) operated by OTC Markets Group, Inc. under the ticker symbol VICT.
Under the federal securities laws, the SEC can suspend trading in a stock for 10 days and generally prohibit a broker-dealer from soliciting investors to buy or sell the stock again until certain reporting requirements are met.
Source: SEC.gov
Feb 22, 2018 | Shareholder & Investor Protection
SEC Charges Former Bitcoin-Denominated BitFunder Platform and Its Operator with Operating and Defrauding Users of an Unregistered Securities Exchange
On February 21, 2018, the Securities and Exchange Commission announced that it charged a former bitcoin-denominated platform and its operator with operating an unregistered securities exchange and defrauding users of that exchange. The SEC also charged the operator with making false and misleading statements in connection with an unregistered offering of securities.
The SEC alleges that BitFunder and its founder, Jon E. Montroll, operated BitFunder as an unregistered online securities exchange and defrauded exchange users by misappropriating their bitcoins and failing to disclose a cyberattack on BitFunder’s system that resulted in the theft of more than 6,000 bitcoins. The SEC also alleges that Montroll sold unregistered securities that purported to be investments in the exchange and misappropriated funds from that investment as well.
Marc Berger, Director of the SEC’s New York Regional Office stated, “We allege that BitFunder operated unlawfully as an unregistered securities exchange. Platforms that engage in the activity of a national securities exchange, regardless of whether that activity involves digital assets, tokens, or coins, must register with the SEC or operate pursuant to an exemption. We will continue to focus on these types of platforms to protect investors and ensure compliance with the securities laws.”
The SEC’s complaint, filed in United States District Court, Southern District of New York, charges BitFunder and Jon E. Montroll with violations of the anti-fraud and registration provisions of the federal securities laws. The SEC’s complaint seeks permanent injunctions and disgorgement plus interest and penalties.
According to the SEC, in a parallel criminal case, the United States Attorney’s Office for the Southern District of New York today filed a complaint against Montroll for perjury and obstruction of justice during the SEC’s investigation.
Please click SEC complaint to review the complaint against Jon E. Montroll and BitFunder.
For additional information, see Spotlight on Initial Coin Offerings and Digital Assets.
Source: SEC.gov
Feb 15, 2018 | Shareholder & Investor Protection
SEC’s Office of Investor Education and Advocacy Issues Investor Alert Warning of the Risks of Using Credit Cards to Buy Investments or Fund an Investment Account
On February 14, 2018, the SEC issued an investor alert to inform investors about the risks associated with investing by credit card. The SEC’s alert advised that investors should understand that most licensed and registered investment firms do not allow their customers to use credit cards to buy investments or to fund an investment account, and investors should work only with a licensed or registered investment professional or firm and not attempt to use a credit card to fund investments.
The SEC’s Investor Alert provided the following information regarding the risks associated with using a credit card for an investment:
Fraud. Unregistered and unlicensed sellers often pressure investors to use credit cards for investments that are actually fraudulent scams. Most registered investment firms do not allow their customers to use credit cards to purchase investments – so be skeptical if you are asked to use a credit card to invest. Investors should research the background of any investment professional or firm before handing over your money, and use the free search tool on Investor.gov to make sure the firm and professional is licensed.
High Interest Rates. High interest rates may significantly reduce the return you receive on any investment or may even cause you to lose more money than you invested. For example, if your credit card charges a 15% interest rate and your investment provides a 10% return, you will owe more money than you made on your investment if you do not pay off your credit card balance before any interest accrues. The SEC advises investors to consider paying off credit card debt before making an investment decision.
Credit Risk. If you cannot make your credit card’s minimum payments, you may incur additional credit card fees and risk damage to your credit score.
Transaction Fees. Credit card companies generally charge a processing fee (often ranging from 1.5% to 3%) for each credit card transaction. If you use a credit card to buy an investment, you generally have to pay this processing fee with each investment purchase which would have a major impact on the investment’s return.
Issues with Withdrawals. Credit card investment scammers often use delay tactics when you attempt to withdraw your money from the fraudulent investment. These scammers will often hold up your withdrawal request from an investment account until it is too late for you to dispute the charge(s) with your credit card company. The Fair Credit Billing Act (FCBA) provides consumer protections if you are charged for goods and services you didn’t accept or that weren’t delivered as agreed, but you must send a letter disputing the charges that reaches the creditor within 60 days after the first bill with the error was mailed to you.
Credit Card Abuse. Be watchful for unauthorized charges on your credit card statements. Even if you signed a form purportedly waiving your right to dispute any credit card charges, report all unauthorized charges to your credit card company immediately.
Third-Party Payment Processors. If you make an investment using your credit card through a third-party wallet service or payment processor, you may have limited recovery options because these entities may be unregulated or operating unlawfully.
Margin Accounts. A margin account is an investment account offered by some investment firms which allows you to borrow cash from the investment firm to buy securities, using the account as collateral. While both involve borrowing money to buy investments, using a margin account is not the same as using a credit card to buy securities. For additional information on how margin accounts work and their related rules and regulations, please review the SEC’s Investor Bulletin: Understanding Margin Accounts.
Source: Investor.gov
Feb 12, 2018 | Shareholder & Investor Protection
SEC Investigation Finds That Traders and Salespeople Made False and Misleading Statements While Negotiating Sales of Commercial Mortgage-Backed Securities (“CMBS”)
On February 12, 2018, the Securities and Exchange Commission announced that the SEC instituted an enforcement action against Deutsche Bank Securities Inc., and Deutsche Bank has agreed to repay more than $3.7 million, including $1.48 million ordered as disgorgement, to customers.
The SEC stated that its investigation found that traders and salespeople made false and misleading statements while negotiating sales of CMBS. According to the Deutsche Bank Securities SEC Order, customers overpaid for CMBS, because they were misled about the prices at which Deutsche Bank had originally purchased them. Deutsche Bank, according to the SEC’s order, failed to have compliance and surveillance procedures in place that were reasonably designed to prevent and detect the misconduct that consequently increased the firm’s profits on CMBS transactions to the detriment of its customers.
The SEC’s order finds supervisory failures by the former head trader of Deutsche Bank’s CMBS trading desk, Benjamin Solomon, a resident of Brooklyn, New York, who did not take appropriate action after becoming aware of false statements made to customers by traders under his supervision, including specific misrepresentations about the prices that Deutsche Bank paid for the CMBS.
Deutsche Bank, as part of its settlement, agreed to reimburse customers the full amount of firm profits earned on any CMBS trades in which a misrepresentation was made. According to a payment schedule in the order, Deutsche Bank will distribute more than $3.7 million pay a $750,000 penalty. Benjamin Solomon agreed to pay a $165,000 penalty and serve a 12-month suspension from the securities industry.
Deutsche Bank and Benjamin Solomon consented to the SEC’s order without admitting or denying the findings. The SEC’s order notes that the penalty amounts reflect substantial cooperation by Deutsche Bank and Solomon during the SEC’s investigation, including remedial efforts by the firm to improve its internal controls, compliance training, and surveillance efforts.
Source: SEC.gov
Jan 31, 2018 | Shareholder & Investor Protection
SEC Stops AriseBank’s Allegedly Fraudulent Initial Coin Offering Targeting Retail Investors to Fund the World’s First “Decentralized Bank.”
AriseBank Used Social Media and Celebrity Endorsements to Raise $600 Million of Its $1 Billion Goal in Two Months
Unregistered Investments in “AriseCoin” Cryptocurrency Allegedly Offered and Sold
On January 30, 2018, the Securities and Exchange Commission (“SEC”) announced (“SEC Halts Alleged Initial Coin Offering Scam”) that it obtained a court order halting an allegedly fraudulent initial coin offering (“ICO”) that targeted retail investors to fund what it claimed to be the world’s first “decentralized bank.”
According to the SEC’s complaint, Dallas-based AriseBank used social media, a celebrity endorsement, and other wide dissemination tactics to raise what it claims to be $600 million of its $1 billion goal in just two months.
AriseBank and its co-founders Jared Rice, Sr. and Stanley Ford allegedly offered and sold unregistered investments in their purported “AriseCoin” cryptocurrency by depicting AriseBank as a first-of-its-kind decentralized bank offering a variety of consumer-facing banking products and services using more than 700 different virtual currencies. AriseBank’s sales pitch claimed that it developed an algorithmic trading application that automatically trades in various cryptocurrencies.
The SEC alleges that AriseBank falsely stated that it purchased an FDIC-insured bank which enabled it to offer customers FDIC-insured accounts and that it also offered customers the ability to obtain an AriseBank-branded VISA card to spend any of the 700-plus cryptocurrencies. AriseBank also allegedly omitted to disclose the criminal background of key executives.
Stephanie Avakian, Co-Director of the SEC’s Enforcement Division said, “We allege that AriseBank and its principals sought to raise hundreds of millions from investors by misrepresenting the company as a first-of-its-kind decentralized bank offering its own cryptocurrency to be used for a broad range of customer products and services. We sought emergency relief to prevent investors from being victimized by what we allege to be an outright scam.”
The court approved an emergency asset freeze over AriseBank, Rice, and Ford and appointed a receiver over AriseBank, including over its digital assets. The SEC intervened to protect the digital assets before they could be dissipated, enabling the receiver to immediately secure various cryptocurrencies held by AriseBank including Bitcoin, Litecoin, Bitshares, Dogecoin, and BitUSD.
AriseCoin’s public sale began around Dec. 26, 2017, and was originally scheduled to conclude on Jan. 27, 2018, with distribution to investors on Feb. 10, 2018. The SEC seeks preliminary and permanent injunctions, disgorgement of ill-gotten gains plus interest and penalties, and bars against Rice and Ford to prohibit them from serving as officers or directors of a public company or offering digital securities again in the future.
Initial Coin Offering & Cryptocurrency Investors
Initial Coin Offering and cryptocurrency (e.g., Bitcoin, Litecoin) investors are encouraged to use caution when considering cryptocurrency investments and Initial Coin Offerings, in addition to reviewing the following information:
SEC Chairman Jay Clayton Statement on Cryptocurrencies and Initial Coin Offerings (Dec. 11, 2017)
SEC Division of Enforcement and SEC Office of Compliance Inspections and Examinations Statement on Potentially Unlawful Promotion of Initial Coin Offerings and Other Investments by Celebrities and Others (Nov. 1, 2017)
Investor Alert: Public Companies Making ICO-Related Claims(Aug. 28, 2017)
Report of Investigation Pursuant to Section 21(a) of the Securities Exchange Act of 1934: The DAO (July 25, 2017)
Investor Bulletin: Initial Coin Offerings (July 25, 2017)
Investor Alert: Bitcoin and Other Virtual Currency-Related Investments (May 7, 2014)
Investor Alert: Ponzi Schemes Using Virtual Currencies (July 23, 2013)
CFTC Customer Advisory: Understand the Risks of Virtual Currency Trading (December 15, 2017)
A CFTC Primer on Virtual Currencies (October 17, 2017).
Source: SEC Press Release 2018-8, SEC.gov , CFTC.gov
