Jan 24, 2018 | Shareholder & Investor Protection
Randall Crater, Mark Gillespie, and My Big Coin Pay, Inc. Charged by Commodities Futures Trading Commission (“CFTC”) with Fraud and Misappropriation in Ongoing Virtual Currency Scam
Virtual Currency Investors Allegedly Solicited for More Than $6 million for Investments in “My Big Coin”
The CFTC announced the filing of a federal court enforcement action under seal on January 16, 2018, charging commodity fraud and misappropriation related to the ongoing solicitation of customers for a virtual currency known as “My Big Coin.”
CFTC v. My Big Coin Pay, Inc., et al. and Kimberly Renee Benge, et al (No. 18-10077)
The CFTC Complaint charged Defendants Randall Crater of East Hampton, New York; Mark Gillespie of Hartland, Michigan; and My Big Coin Pay, Inc., a Las Vegas, Nevada-based corporation (“My Big Coin Pay Defendants” or “Defendants”), with misappropriating over $6 million from customers by, among other things, transferring customer funds into personal bank accounts, and using those funds for personal expenses and the purchase of luxury goods.
According to the CFTC’s complaint:
From at least January 2014 through January 2018, the My Big Coin Pay Defendants fraudulently solicited potential and existing My Big Coin customers throughout the United States by making false and misleading claims and omissions about My Big Coin’s value, usage, and trade status, and that My Big Coin was backed by gold. The My Big Coin Defendants also, allegedly, fraudulently solicited numerous customers in the District of Massachusetts, receiving in excess of $5 million from those customers.
Further, the My Big Coin website, maintained and operated by the Defendants, conveyed to customers numerous solicitation materials, My Big Coin trade data, and other materials 1) misrepresenting that My Big Coin was actively being traded on several currency exchanges, including the My Big Coin Exchange website, when, in fact, it was not; 2) misrepresenting in reports the daily trading price, when, in fact, no price existed, because My Big Coin was not trading; 3) misrepresenting that My Big Coin was backed by gold, when, in fact, it was not; and 4) misrepresenting that My Big Coin had partnered with MasterCard, with the promise that My Big Coin could be used anywhere MasterCard was accepted, when, in fact, no such partnership existed, and My Big Coin could not be used anywhere MasterCard was accepted.
The supposed trading results, allegedly, were illusory, and any payouts to customers were derived from funds fraudulently obtained from other customers in the manner of a Ponzi scheme.
As customers began to raise questions about their My Big Coin accounts, Defendants attempted to conceal their fraud by issuing additional coins to customers and falsely representing that they had secured a deal with another exchange to trade My Big Coin, according to the CFTC’s complaint. The Defendants allegedly encouraged customers to refrain from redeeming their My Big Coin holdings until My Big Coin was active on this “new” exchange.
The Defendants Misappropriated Funds Used for Personal Purchases, Including a Home, Jewelry & Travel
As alleged in the CFTC complaint, Defendants misappropriated virtually all of the approximately $6 million they solicited from customers. Defendants allegedly used these misappropriated funds to purchase a home, antiques, fine art, jewelry, luxury goods, furniture, interior decorating and other home improvement services, travel, and entertainment.
United States District Court Issues Restraining Order Freezing Assets and Protecting Books and Records
According to the CFTC, on January 16, 2018, a restraining Order, also under seal, was issued freezing the virtual currency Defendants’ assets. The federal judge’s Order also froze the assets of Relief Defendants Kimberly Renee Benge, Kimberly Renee Benge d/b/a Greyshore Advertisement a/k/a Greyshore Advertiset, Barbara Crater Meeks, Erica Crater, Greyshore, LLC, and Greyshore Technology, LLC for allegedly receiving customer funds without providing any legitimate services to clients and without any interest or entitlement to such customer funds. The court’s restraining Order also prohibits the Defendants and Relief Defendants from destroying or altering books and records.
My Big Coin Virtual Currency Investors
My Big Coin investors should be aware that the CFTC, in its continuing litigation, seeks civil monetary penalties, restitution, rescission, disgorgement of ill-gotten gains, trading and registration bans, and permanent injunctions against further violations of the federal commodities laws, as charged.
Image: Bitcoin; Wikimedia Commons (https://en.bitcoin.it/wiki/Promotional_graphics); CC BY-SA 3.0
Virtual Currency Investors
Please click Kehoe Law Firm, P.C. for more information about cryptocurrencies, Initial Coin Offerings, and other class action investigations.
Bitcoin and other virtual currency/cryptocurrency investors are also encouraged to review the following SEC and CFTC cryptocurrency- and Initial Coin Offering-related 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: CFTC.gov, SEC.gov
Jan 19, 2018 | Shareholder & Investor Protection
CFTC Charges Patrick K. McDonnell & CabbageTech, Corp. d/b/a Coin Drop Markets, With Engaging in Fraudulent Virtual Currency Scheme
On January 19, 2018, the Commodity Futures Trading Commission (“CFTC”) issued a press release stating that the CFTC filed a federal civil enforcement action in the United States District Court, Eastern District of New York, against Defendants Patrick K. McDonnell, of Staten Island, New York, and CabbageTech, Corp., d/b/a Coin Drop Markets, a New York corporation (“Defendants”), charging the Defendants with fraud and misappropriation in connection with purchases and trading of Bitcoin and Litecoin.
Fraudulent Virtual Currency Scheme Enforcement Action: Virtual Currency Customers Fraudulently Induced to Send Money & Virtual Currencies
The CFTC complaint alleges that from approximately January 2017 to the present, the Defendants engaged in a deceptive and fraudulent virtual currency scheme to induce customers to send money and virtual currencies to Coin Drop Markets, purportedly in exchange for real-time virtual currency trading advice and for virtual currency purchasing and trading on behalf of the customers under McDonnell’s direction.
According to the CFTC complaint, the supposedly expert, real-time virtual currency advice was never provided, and customers who provided funds to the Defendants to purchase or trade on their behalf never saw those funds again. In short, the Defendants used their fraudulent solicitations to obtain and misappropriate customer funds.
Fraudulent Virtual Currency Scheme Enforcement Action: Defendants Concealed Scheme
The CFTC complaint alleges that Defendants concealed their virtual currency scheme soon after obtaining customer funds by removing the website and social media materials from the Internet, in addition to stopping communication with Coin Drop Market Customers who lost most, if not all, of their invested funds due to Defendants’ fraud and misappropriation.
The CFTC complaint (CFTC v. McDonnell, et al, No. 18-0361) also alleges that the Defendants have never been registered with the CFTC in any capacity, and the CFTC action seeks injunctive and other equitable relief for civil monetary penalties under the Commodity Exchange Act and Commission Regulations.
Fraudulent Virtual Currency Scheme Enforcement Action: CFTC’s Director of Enforcement Comments
The CFTC’s Direcotr of Enforcement, James McDonald, stated that, “[a]s alleged, the Defendants here preyed on customers interested in Bitcoin and Litecoin, promising them the opportunity to get the inside scoop on the next new thing and to benefit from the trading acumen of a supposed expert. In reality, as alleged, customers only bought into the Defendants’ fraudulent scheme.”
Image: Bitcoin, Tumisu, CC0 1.0 Universal
Cryptocurrency & Initial Coin Offering Investor Information
Please click Kehoe Law Firm, P.C. for more information about cryptocurrencies, Initial Coin Offerings, and other class action investigations. Bitcoin and other cryptocurrency Investors are also encouraged to review the following SEC and CFTC cryptocurrency- and Initial Coin Offering-related 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: CFTC.gov and SEC.gov
Jan 19, 2018 | Shareholder & Investor Protection
Bitcoin Fraud Enforcement Action: Bitcoin & Binary Options Fraud Scheme: CFTC Charges Colorado Resident Dillon Michael Dean & The Entrepreneurs Headquarters Limited
On January 19, 2018, the Commodity Futures Trading Commission (CFTC) issued a press release stating that on January 18, 2018, the CFTC filed a civil enforcement action in United States District Court, Eastern District of New York, against Defendants Dillon Michael Dean of Longmont, Colorado, and his company, The Entrepreneurs Headquarters Limited, a UK-registered company (“Bitcoin Defendants”).
Bitcoin Fraud Enforcement Action: Bitcoin Defendants Engaged in Scheme to Solicit Bitcoin
The CFTC complaint charges the Bitcoin Defendants with engaging in a fraudulent scheme to solicit Bitcoin from members of the public, misrepresenting that customers’ funds would be pooled and invested in products including binary options, making Ponzi-style payments to commodity pool participants from other participants’ funds, misappropriating pool participants’ funds, and failing to register with the CFTC as a Commodity Pool Operator and Associated Person of a Commodity Pool Operator.
Bitcoin Fraud Enforcment Action: CFTC’s Director of Enforcement Comments
The CFTC’s Director of Enforcement, James McDonald, stated that the Bitcoin Defendants, “[a]s alleged in the [c]omplaint, . . . sought to take advantage of that public interest, offering retail customers the chance to use Bitcoin to invest in binary options, when in reality they were only buying into a Ponzi scheme.” The CFTC’s Director of Enforcement emphasized that “. . . the CFTC will continue to take swift action to stop such fraudulent schemes and to hold fraudsters accountable for their misconduct.”
Bitcoin Fraud Enforcement Action: CFTC’s Complaint Allegations Against Bitcoin Defendants
The CFTC’s complaint against the Bitcoin Defendants alleges the following:
From approximately April 2017 through the present, the Bitcoin Defendants, who have never been registered with the CFTC in any capacity, engaged in a fraudulent scheme, through which they solicited at least $1.1 million worth of Bitcoin from more than 600 members of the public.
The Bitcoin Defendants allegedly promised to convert this Bitcoin into fiat currency to invest on the customers’ behalf in a pooled investment vehicle for trading commodity interests, including trading binary options on an online exchange designated as a contract market by the CFTC.
Potential pool participants were solicited to invest with the Bitcoin Defendants by false claims of trading expertise and promises of high rates of return.
Rather than convert customers’ Bitcoin to fiat currency to invest in binary options contracts, as promised, the Bitcoin Defendants misappropriated their customers’ funds, including, like a Ponzi scheme, use of the funds to pay other customers.
The Bitcoin Defendants solicited customer deposits using company websites, YouTube videos, and Facebook posts, where the Bitcoin Defendants claimed that customers’ funds would be pooled and invested in commodity options on behalf of customers, that Bitcoin Defendant Dillon Michael Dean had “strong skills” in options trading, and that the Bitcoin Defendants were generating high rates of return through trading commodity options, among other false claims.
The Bitcoin Defendants, however, were not actually engaged in trading on behalf of their customers, and the Bitcoin Defendants’ purported trading profits were fictitious. As alleged in the CFTC’s complaint, the Bitcoin Defendants stopped making payments to their customers, having misappropriated over $1 million in customers’ funds, while Bitcoin Defendant Dean has launched another similar purported trading venture under the name Real Trade Profits, using a website to solicit customers to deposit Bitcoin for a pooled investment in binary options trading and promising high rates of return.
The CFTC’s complaint (CFTC v. Dean, et al, No. 18-00345) seeks injunctive and other relief, restitution, and civil monetary penalties under the Commodity Exchange Act.
Image: “New bitcoin logo,” Bitboy (Derived from Bitcoin logo.svg), CC0 1.0 Universal
Bitcoin Cryptocurrency & Initial Coin Offering Investor Information
Please click Kehoe Law Firm, P.C. for more information about cryptocurrencies, Initial Coin Offerings, and other class action investigations.
Kehoe Law Firm also encourages investors to review the following SEC and CFTC cryptocurrency- and Initial Coin Offering-related 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: CFTC.gov and SEC.gov
Jan 17, 2018 | Shareholder & Investor Protection
SEC Chairman and Commissioners Issue Statement Regarding NASAA’s Reminder to Investors to Use Caution When Approaching Cryptocurrencies, ICO’s & Other Cryptocurrency-Related Investment Products
On January 4, 2018, SEC ChairmanJay Clayton and Commissioners Kara M. Stein and Michael S. Piwowar issued a statement “commend[ing] the North American Securities Administrators Association . . . on their release highlighting important issues and concerns related to cryptocurrencies, initial coin offerings (ICOs) and other cryptocurrency-related investment products.”
The statement of the SEC Chairman and Commissioners also stated that
NASAA’s release is a timely and thoughtful reminder to Main Street investors to exercise caution. The release recognizes that cryptocurrencies, while touted as replacements for traditional currencies, lack many important characteristics of traditional currencies, including sovereign backing and responsibility, and now are being promoted more as investment opportunities than efficient mediums for exchange.
The NASAA release also reminds investors that when they are offered and sold securities they are entitled to the benefits of state and federal securities laws, and that sellers and other market participants must follow these laws. Unfortunately, it is clear that many promoters of ICOs and others participating in the cryptocurrency-related investment markets are not following these laws. The SEC and state securities regulators are pursuing violations, but . . . again caution . . . that, if [one] lose[s] money, there is a substantial risk that [regulatory] efforts will not result in a recovery of [one’s] investment. [Emphasis added]
The SEC’s statement also encouraged investors to read NASAA’s release and, importantly, to note the common “red flags” of investment fraud that NASAA’s release mentions, in addition to reviewing the following SEC investor-related bulletins, alerts, reports, and statements:
Image: Pixabay, Gerd Altmann (geralt), CC0 Creative Commons License
NASAA’s Reminder to Cryptocurrency & Initial Coin Offering Investors
NASAA’s investor reminder (“NASAA Reminds Investors to Approach Cryptocurrencies, Initial Coin Offerings and Other Cryptocurrency-Related Investment Products with Caution”) advises “Main Street” investors use caution when investing in cryptocurrencies. NASAA’s cryptocurrency investor reminder, among other things, stated:
Cryptocurrencies are a medium of exchange that are created and stored electronically in the blockchain, a distributed public database that keeps a permanent record of digital transactions. Current common cryptocurrencies include Bitcoin, Ethereum and Litecoin. Unlike traditional currency, these alternatives have no physical form and typically are not backed by tangible assets. They are not insured or controlled by a central bank or other governmental authority, cannot always be exchanged for other commodities, and are subject to little or no regulation. [Emphasis added]
A NASAA survey of state and provincial securities regulators shows 94 percent believe there is a “high risk of fraud” involving cryptocurrencies. Regulators also were unanimous in their view that more regulation is needed for cryptocurrency to provide greater investor protection. [Emphasis added]
NASAA’s investor reminder also quoted NASAA President and Director of the Alabama Securities Commission, Joseph P. Borg, who stated that “Cryptocurrencies and investments tied to them are high-risk products with an unproven track record and high price volatility. Combined with a high risk of fraud, investing in cryptocurrencies is not for the faint of heart.”
Initial Coin Offerings & Cryptocurrency-Related Investments: “Emerging Investor Threats”
NASAA’s reminder also stated that last month ICO’s and cryptocurrency-related investment products were identified as emerging investor threats for 2018. According to NASAA:
Unlike an Initial Public Offering (IPO) when a company sells stocks in order to raise capital, an ICO sells “tokens” in order to fund a project, usually related to the blockchain. The token likely has no value at the time of purchase. Some tokens constitute, or may be exchangeable for a new cryptocurrency to be launched by the project, while others entitle investors to a discount, or early rights to a product or service proposed to be offered by the project. [Emphasis added]
NASAA’s “Get in the Know About ICOs” Video, Common Cryptocurrency Concerns & Common Red Flags of Fraud
For investors, NASAA’s reminder identified common concerns to consider before investing in cryptocurrency, as well as reminded investors to look for the common “red flags” of investment fraud, such as “guaranteed” high investment returns, investment claims which “sound too good to be true,” “pressure to buy immediately,” and unlicensed individuals or investment firms.
Lastly, NASAA provided an animated video, “Get in the Know About ICOs,” to assist investors understand the risks associated with cryptocurrency and Initial Coin Offerings.
Image: Pixabay, Gerd Altmann (geralt), CC0 Creative Commons License
Please click Kehoe Law Firm, P.C. for more information about Initial Coin Offerings and cryptocurrency, as well as other securities- and consumer-related class action matters.
Jan 1, 2018 | Shareholder & Investor Protection
ATBCoin Initial Coin Offering – Class Action Lawsuit Filed for Violation of the Securities Act of 1933
On December 21, 2017, a class action lawsuit was filed in United States District Court, Southern District of New York, against ATBCoin LLC, Edward Ng, and Herbert W. Hoover for violations of the Securities Act of 1933 in connection with the ATBCoin Initial Coin Offering, during which ATBCoin Defendants raised over $20 million in digital cryptocurrencies by offering and selling alleged unregistered securities.
ATBCoin Initial Coin Offering – “ATB Coin” Cryptocurrency ICO Sought to Raise Millions
According to the ATBCoin class action complaint, between approximately June 12, 2017 and approximately September 15, 2017, ATBCoin Defendants received more than $20 million in digital currency investments in exchange for ATB Coins. A press release cited in the class action complaint (“ATB Coin Cryptocurrency ICO Now Underway Across The Globe Company Offers Investors a Unique Opportunity”) stated:
With the wildly successful captivating press about ATB Сoin’s U.S. introductory launch last Thursday, the company’s Management Team is reporting over $12 million has been raised within the first fifteen minutes of the cryptocurrency’s highly-anticipated ICO.
According to CEO Edward Ng, the company’s technologically revolutionary cryptocurrency has already attracted excited investors from the United States, Canada, and China. Edward Ng further elaborated the company is pleased with such a high level of interest and optimism from investors; adding that the ICO will be ongoing for the next four weeks, with a targeted amount of $50 million. [Emphasis added]
ATB Сoin’s ambitious plans for global growth are already in place and are moving forward. This cryptocurrency is developed with the world’s most advanced protocols built-in such as SegWit, Lightning Network, and Smart Contracts. Borderless micro payment transactions are recorded in as little as microseconds. “Our team is well-positioned to move forward with our intermediate goal of opening offices across the U.S., Canada, Latin America, and Asia,” said Herbert W. Hoover III, ATB Coin co-founder.
Details of ICO: Crowdfunding of ATB Coin tokens began June 12, 2017 and will continue for the next four consecutive weeks. Potential investors are offered bonuses up to 10%, which will motivate an investor for an additional capital investment. Altogether, the maximum tokens issued will number 33 million, of which 50 million will be assigned to the Crowdfunding ICO.
ATBCoin Initial Coin Offering – ICO Amount Raised Uncertain
Although the total amount raised during the ATBCoin Initial Coin Offering has not, according to the class action complaint, been publicly stated by the ATBCoin Defendants, ICO-related websites estimate that the ATBCoin Initial Coin Offering raised between $20,400,000 and $24,210,000.
ATBCoin Initial Coin Offering – The ICO’s Declared Purpose
According to the ATBCoin class action complaint:
The purported primary purpose of the ATB [Initial Coin Offering] was to raise capital to create and launch a new blockchain that would “deliver blazing fast, secure and near-zero cost payments to anyone in the world.”[] Defendants claimed this network, which was to launch on September 1, 2017, would be “the fastest blockchain-based cryptographic network in the Milky Way galaxy.”[] Defendants actually launched the “ATB Blockchain” on September 14, 2017. It is hardly the “fastest . . . in the Milky Way galaxy.” Rather, adoption of ATB Coin and the ATB Blockchain has been essentially nonexistent, and the value of ATB Coins has continuously fallen.[] [Emphasis added]
ATBCoin Initial Coin Offering – ATBCoin Touts an Investment Opportunity
According to the ATBCoin class action complaint:
The [ATBCoin] Defendants . . . made numerous public statements touting the ATB [Initial Coin Offering] and ATB Coins as investment opportunities. For example, on July 9, 2017, Defendants issued a press release entitled, “PR: Over 5,500 People Choose to Invest in ATB Coin.”[] This press release concluded with: “Only 3 days left before the launch of ATB Coin! Invest in the cryptocurrency of the future, while the project offers the most favorable terms!” [Emphasis added]
The aforementioned press release also stated:
At the moment, over 5,500 people from all over the world have made investments in ATB Coin. The number of investors continues to increase with each passing hour. To support the project, an amount exceeding $15,800,000 has already been collected. ATB Coin’s affiliate network also continues to grow. The company enters into partnership agreements with crypto-exchanges, payment systems and services. The recent participation in IV International Blockchain Summit-2017 brought the project even more contacts of potential partners.
Currently, the 2nd stage of ATB Coin ICO started, lasting until the official blockchain network launch, which is scheduled for September 1st. The first round of the second stage of ICO, during which investors may receive a 20% bonus, was completed. The 3rd round of ICO will last until August 31th. Anyone who joins the project within this time limit will receive a 10% bonus of the invested amount on their account. [Emphasis added]
ATBCoin Initial Coin Offering – An Alleged “Clear Offer and Sale of Securities”
According to the class action complaint:
The core offer during the ATB [Initial Coin Offering] was 1 ATB Coin for $1, payable in Bitcoin (“BTC”), Ether (“ETH”), Litecoin (“LTC”), and potentially other cryptocurrencies. However, there are indications that the offer was modified throughout the ICO. For example, the offer in August 2017 appears to have been 1 ATB Coin for $1.5, payable in BTC, ETH, or LTC.[] Further, in September 2017, the offer was 1 ATB Coin for $2.5, also payable in BTC, ETH, or LTC.
The ATB [Initial Coin Offering] was a clear offer and sale of securities because, inter alia, Defendants touted, and Plaintiff and other ATB ICO investors reasonably expected, that the ATB Coins received in exchange for their investments would be worth more than the ETH, BTC, LTC, or other currencies invested. Additionally, . . . Defendants have explicitly referred to the ATB [Initial Coin Offering] participants as “investors” and repeatedly stressed the profit potential from holding ATB Coins. [Emphasis added]
. . .
Due to the varied and innumerable ways in which investors can be, and are likely to be, manipulated and harmed absent any of the protections under the federal securities laws, Sections . . . of the Securities Act provide for strict liability against any person who offers or sells an unregistered security. As detailed [in the complaint], the ATB [Initial Coin Offering] was, and has at all times been, an offer and sale of unregistered securities, and [the ATBCoin] Defendants are therefore strictly liable under . . . the Securities Act. [Emphasis added]
ATBCoin Initial Coin Offering – ATBCoin Price Plunge
A ccn.com story, “ATBCoin Hit With Class-Action Lawsuit After $20 million ICO,” reported that
[a]ccording to an estimate from ICO tracker CoinSchedule, the ATBCoin token sale raised $20.4 million worth of bitcoin, ether, and litecoin during its ICO, which ran from June through September.
However, to the chagrin of investors, the value of ATBCoin price has plunged from a high of $1.52 shortly after the ICO to less than $0.48 at the time of writing, even as the values of the coins used to contribute to the ICO have surged. [Emphasis added]
Image: Pexels, David McBee, CC0 1.0 Universal
Cryptocurrency & Initial Coin Offering Investors
If you are a cryptocurrency or Initial Coin Offering investor with questions or concerns about your potential legal claims or rights and wish to speak privately with a securities attorney, please complete the form above on the right or e-mail [email protected].
For more ICO-related information, please click Initial Coin Offerings and Cryptocurrency & Initial Coin Offerings.
Dec 31, 2017 | Shareholder & Investor Protection
Cryptocurrency & Initial Coin Offerings – SEC Chairman’s “Statement on Cryptocurrencies and Initial Coin Offerings”
On December 11, 2017, SEC Chairman Jay Clayton issued a “Statement on Cryptocurrencies and Initial Coin Offerings.” The statement provided the SEC Chairman’s general views on the cryptocurrency and ICO markets and, among other things, important considerations for “Main Street” investors involved with cryptocurrency- and ICO-related investments.**
Image: Pixabay, Gerd Altmann (geralt), CC0 1.0 Universal
Select Highlights of the SEC Chairman’s Statement Regarding Cryptocurrency and Initial Coin Offerings
The cryptocurrency and Initial Coin Offering markets have grown rapidly. The cryptocurrency and Initial Coin Offering markets are local, national and international and include an ever-broadening range of products and participants. The cryptocurrency and ICO markets also present investors and other market participants with many questions, such as:
- Is the product legal?
- Is it subject to regulation, including rules designed to protect investors?
- Does the product comply with those rules?
- Is the offering legal?
- Are those offering the product licensed to do so?
- Are the trading markets fair?
- Can prices on those markets be manipulated?
- Can I sell when I want to?
- Are there substantial risks of theft or loss, including from hacking?
Cryptocurrency & Initial Coin Offerings – Considerations for “Main Street” Investors
A number of concerns have been raised regarding the cryptocurrency and ICO markets, including that, as they are currently operating, there is substantially less investor protection than in our traditional securities markets, with correspondingly greater opportunities for fraud and manipulation.
Investors should understand that, to date, no initial coin offerings have been registered with the SEC. The SEC also has not, to date, approved for listing and trading any exchange-traded products (e.g., ETFs) holding cryptocurrencies or other assets related to cryptocurrencies. If any person today tells you otherwise, be especially wary.
The CFTC has designated bitcoin as a commodity. Fraud and manipulation involving bitcoin traded in interstate commerce are appropriately within the purview of the CFTC, as is the regulation of commodity futures tied directly to bitcoin. That said, products linked to the value of underlying digital assets, including bitcoin and other cryptocurrencies, may be structured as securities products subject to registration under the Securities Act of 1933 or the Investment Company Act of 1940.
Cryptocurrency & Initial Coin Offerings- Investors: Ask Questions & Get Clear Answers!!
Questions for Investors Considering Cryptocurrency or ICO Investments
- Who exactly am I contracting with?
- Who is issuing and sponsoring the product, what are their backgrounds, and have they provided a full and complete description of the product? Do they have a clear written business plan that I understand?
- Who is promoting or marketing the product, what are their backgrounds, and are they licensed to sell the product? Have they been paid to promote the product?
- Where is the enterprise located?
- Where is my money going and what will be it be used for? Is my money going to be used to “cash out” others?
- What specific rights come with my investment?
- Are there financial statements? If so, are they audited, and by whom?
- Is there trading data? If so, is there some way to verify it?
- How, when, and at what cost can I sell my investment? For example, do I have a right to give the token or coin back to the company or to receive a refund? Can I resell the coin or token, and if so, are there any limitations on my ability to resell?
- If a digital wallet is involved, what happens if I lose the key? Will I still have access to my investment?
- If a blockchain is used, is the blockchain open and public? Has the code been published, and has there been an independent cybersecurity audit?
- Has the offering been structured to comply with the securities laws and, if not, what implications will that have for the stability of the enterprise and the value of my investment?
- What legal protections may or may not be available in the event of fraud, a hack, malware, or a downturn in business prospects? Who will be responsible for refunding my investment if something goes wrong?
- If I do have legal rights, can I effectively enforce them and will there be adequate funds to compensate me if my rights are violated?
As with any other type of potential investment, if a promoter guarantees returns, if an opportunity sounds too good to be true, or if you are pressured to act quickly, please exercise extreme caution and be aware of the risk that your investment may be lost.
Image: Pixabay, Gerd Altmann (geralt), CC0 1.0 Universal
Cryptocurrency & Initial Coin Offerings – Cryptocurrencies, ICOs & Securities Registration
Cryptocurrencies. Cryptocurrencies purport to be items of inherent value (similar, for instance, to cash or gold) that are designed to enable purchases, sales and other financial transactions. They are intended to provide many of the same functions as long-established currencies such as the U.S. dollar, euro or Japanese yen, but do not have the backing of a government or other body.
Although the design and maintenance of cryptocurrencies differ, proponents of cryptocurrencies highlight various potential benefits and features of them, including (1) the ability to make transfers without an intermediary and without geographic limitation, (2) finality of settlement, (3) lower transaction costs compared to other forms of payment and (4) the ability to publicly verify transactions. Other often-touted features of cryptocurrencies include personal anonymity and the absence of government regulation or oversight. Critics of cryptocurrencies note that these features may facilitate illicit trading and financial transactions, and that some of the purported beneficial features may not prove to be available in practice.
It has been asserted that cryptocurrencies are not securities and that the offer and sale of cryptocurrencies are beyond the SEC’s jurisdiction. Whether that assertion proves correct with respect to any digital asset that is labeled as a cryptocurrency will depend on the characteristics and use of that particular asset.
Initial Coin Offerings. Coinciding with the substantial growth in cryptocurrencies, companies and individuals increasingly have been using initial coin offerings to raise capital for their businesses and projects. Typically, these offerings involve the opportunity for individual investors to exchange currency such as U.S. dollars or cryptocurrencies in return for a digital asset labeled as a coin or token.
These offerings can take many different forms, and the rights and interests a coin is purported to provide the holder can vary widely. A key question for all ICO market participants: “Is the coin or token a security?” As securities law practitioners know well, the answer depends on the facts. For example, a token that represents a participation interest in a book-of-the-month club may not implicate our securities laws, and may well be an efficient way for the club’s operators to fund the future acquisition of books and facilitate the distribution of those books to token holders. In contrast, many token offerings appear to have gone beyond this construct and are more analogous to interests in a yet-to-be-built publishing house with the authors, books and distribution networks all to come. It is especially troubling when the promoters of these offerings emphasize the secondary market trading potential of these tokens. Prospective purchasers are being sold on the potential for tokens to increase in value – with the ability to lock in those increases by reselling the tokens on a secondary market – or to otherwise profit from the tokens based on the efforts of others. These are key hallmarks of a security and a securities offering.
By and large, the structures of initial coin offerings that the SEC Chairman has seen promoted involve the offer and sale of securities and directly implicate the securities registration requirements and other investor protection provisions of the U.S. federal securities laws. Generally speaking, these laws provide that investors deserve to know what they are investing in and the relevant risks involved.
It is possible to conduct an ICO without triggering the SEC’s registration requirements. For example, just as with a Regulation D exempt offering to raise capital for the manufacturing of a physical product, an initial coin offering that is a security can be structured so that it qualifies for an applicable exemption from the registration requirements.
Cryptocurrency & Initial Coin Offerings – SEC-Related Alerts, Bulletins & Statements
The SEC has issued the following investor alerts, bulletins, and statements on initial coin offerings and cryptocurrency-related investments, including those related to the marketing of certain offerings and investments by celebrities and others:
Statement on Potentially Unlawful Promotion of Initial Coin Offerings and Other Investments by Celebrities and Others (Nov. 1, 2017), available at https://www.sec.gov/news/public-statement/statement-potentially-unlawful-promotion-icos
Investor Alert: Public Companies Making ICO-Related Claims (Aug. 28, 2017), available at https://www.sec.gov/oiea/investor-alerts-and-bulletins/ia_icorelatedclaims
Investor Bulletin: Initial Coin Offerings (July 25, 2017), available athttps://www.sec.gov/oiea/investor-alerts-and-bulletins/ib_coinofferings
Investor Alert: Bitcoin and Other Virtual Currency-Related Investments (May 7, 2014), available athttps://www.investor.gov/additional-resources/news-alerts/alerts-bulletins/investor-alert-bitcoin-other-virtual-currency
Investor Alert: Ponzi Schemes Using Virtual Currencies (July 23, 2013), available at https://www.sec.gov/investor/alerts/ia_virtualcurrencies.pdf.
See also Kehoe Law Firm’s “Initial Coin Offerings – Be Aware of Potential Initial Coin Offering Risks” posting providing information from the SEC’s Office of Investor Education and Advocacy.
Cryptocurrency & Initial Coin Offerings – SEC Enforcement Actions
Press Release, Company Halts ICO After SEC Raises Registration Concerns (Dec. 11, 2017), available at https://www.sec.gov/news/press-release/2017-227
Press Release, SEC Emergency Action Halts ICO Scam (Dec. 4, 2017), available at https://www.sec.gov/news/press-release/2017-219
Press Release, SEC Exposes Two Initial Coin Offerings Purportedly Backed by Real Estate and Diamonds (Sept. 29, 2017), available at https://www.sec.gov/news/press-release/2017-185-0.
**The SEC Chairman’s statement contained a footnote which stated that the information in the SEC Chairman’s statement is his own and does not reflect the views of any other Commissioner or the Commission. Further, the SEC Chairman’s statement is not, and should not be taken as, a definitive discussion of applicable law, all the relevant risks with respect to these products, or a statement of the SEC Chairman’s position on any particular product. Additionally, the SEC Chairman’s statement is not a comment on any particular submission, in the form of a proposed rule change or otherwise, pending before the SEC.
Source: “Statement on Cryptocurrencies and Initial Coin Offerings” (December 11, 2017) by SEC Chairman Jay Clayton, available at https://www.sec.gov/news/public-statement/statement-clayton-2017-12-11#_ftn6 (last accessed 12.31.2017).
Cryptocurrency (“Bitcoin”) & Initial Coin Offering Investors
If you are an investor of cryptocurrency (e.g., Bitcoin) or Initial Coin Offerings and have concerns about your legal rights or potential legal claims and wish to speak privately with a securities attorney, please complete the form above on the right or e-mail [email protected].
