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Securities and Exchange Commission [SEC]

$30M Cryptocurrency Scam Lawsuit Put on Hold by Federal Judge

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A federal judge in New Jersey has suspended a $30 million suspected cryptocurrency fraud case against the Securities and Exchange Commission (SEC). The trial is between the regulatory agency and a woman from Essex County who was prosecuted in January for her alleged role in the fraudulent ICO that had swindled off investors of $30 million.

The federal court agreed to the U.S. government ‘s appeal for participation in the cryptocurrency scam lawsuit; placing it on hold before a separate case is decided against the initial coin offering (ICO) proponents of the Blockchain Terminal (BCT).

Conspiracy to commit wire fraud charges

Two Canadian internationals, 68-year-old Edith Pardo and 46-year-old Boaz Manor, are charged with one count of conspiracy to commit wire fraud each, three charges of wire fraud and another count of operating a fraudulent ICO.

In addition, the SEC also accused Pardo and Manor of fraud for swindling in a fake ICO over $30 million from hundreds of investors; it promised to distribute Bloomberg Terminal crypto variants. The two firms, CG Blockchain Inc. and BCT Inc., which owned the two defendants, organized the fraudulent ICO.

Cryptocurrency scam lawsuit stalled

The most controversial figure of the accused members is contested Canadian citizen, Boaz Manor. The manor is notably a convicted hedge fund scam artist who has a history of jail sentence after a hedge fund that he helped establish failed. In addition, Manor accepted a lifetime investment ban; sentenced to four years for the $106 million scams.

Stanley Chesler, federal judge of New Jersey, approved a bid by state prosecutors to stay the cryptocurrency scam lawsuit against the fraudulent hedge fund manager and the woman involved in the Bloomfield scam on June 24. Notably, the Bloomfield woman reportedly impersonated as a moneyed entrepreneur, awaiting their fraudulent charges to be settled. The judge also notified them, in conclusion, that they could modify or lift the stay as situations change.

Supreme Court of US Moves to Curb SEC’s Control Over Penal Fines on Crypto Firms

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The United States Securities Exchange Commission (SEC) has been limited in penalizing irregularities with fines. The Supreme Court of US ruled on June 23 to restrain the amount of fine that the watchdog can inflict on crypto and blockchain-related companies.

The ruling of the U.S. apex court in the National Law Review states that the SEC can not impose fines (disgorgement) that exceed the profits generated by illicit proceeds. In addition, penalties may only be imposed for the benefit of victims, not as penal damages.

The new ruling will apply in the course of the proceedings to all litigants. Still, to cryptocurrency and blockchain companies, this is a strict definition of the penalty that must be equivalent to the offense when it comes to financial penalties. The SEC is already restricted by a five-year limitation period when it is imposed.

Substantial fines forced by the SEC in the past

In May, the SEC, in a case against BitClave, ordered the startup to refund $25.5M to investors after finding the firm guilty of distributing unregistered securities. The lawsuit also included $3.8 million in fines and interest. Moreover, the authority also indicted an ex-pastor and his wife for pilfering $500,000. Part of the amount was gained through a fraudulent cryptocurrency offering backed by a mineral water firm.

In that case, the SEC imposed fines equivalent to the stolen funds, on top of interests and civil penalties. The total amount exceeded the $500,000 that the two allegedly defrauded investors. However, the latest Supreme Court ruling would have inflicted a $500,000 fine, the amount reportedly stolen by the couple.

Supreme Court of US ruling leniency

In fact, under the new ruling, if the couple had used some of the ill-gotten funds in the water business that supported the offer, the amount spent would have been subtracted from the total amount after the SEC had fixed the due penalty.

The SEC is one of the most active financial regulators in the United States. The authority is always combating fraudulent schemes in the blockchain and cryptocurrency space.

Crypto Brothers Lied to Investors in $31M Fraud, Says SEC

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According to a press release issued on June 19 by the United States Securities and Exchange Commission ( SEC), the crypto brothers Sean and Shane Hvizdzak received $31 million from investors and reportedly transferred some of the funds to their private accounts. The SEC attained a temporary restraining order, and assets freeze against the crypto brothers, after filing an emergency action. As per the filing, the High Street Capital fund run by the two took substantial funds from investors that were supposed to go towards cryptocurrency trading

Crypto brothers transferred investor funds to private accounts

However, the watchdog asserts that the pair had lied to investors about the performance of the investment, replicated documents, and fake financial data as the two had moved most of the investor funds to their accounts. According to the SEC, the funds raised by investors amounted to $31 million, but $26 million was transferred to private accounts.

The SEC filing provides comprehensive, in-depth details of the movement of funds between the High Street Capital accounts and those of the Hvizdzaks crypto brothers. In addition, the fund claimed substantial returns on investment; for instance, 100.77 percent in Q3 2019 and 92.9 percent in Q4 2019. In reality, the investment suffered losses over the two periods.

Series of lies

Additionally, the fund asserts to own $157 million worth of assets as of December 31, 2019. $107 million is said to be in New York-based Gemini crypto exchange and custody service firm. However, the fund had only $2.2 million in cash and just $0.53 in a Gemini account.

As per the court filing, the crypto brothers utilized their private Gemini accounts to exchange fiat with digital assets of the same value. Afterward, the investor funds were transferred to “unattributed, non-custodial locations on various blockchains.”

SEC Obtains Assets Freeze Against Crypto Mining for Defrauding Millions from Investors

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The United States Securities and Exchange Commission (SEC) reported on Friday, June 5, 2020, that it has secured an asset freeze and other emergency relief against Daniel F. Putnam, Jean Paul Ramirez Rico, and Angel A. Rodriguez, who reportedly deceived investors in two cryptocurrency-related schemes over $12million. Millions were raised by running a multi-level marketing business known as the “Modern Money Team” operated from July 2017 to November of last year.

According to the complaint of the SEC, unsealed at the federal court in Salt Lake City, Putnam invested in crypto-mining equipment until at least July 2017 and subsequently turning to offer investors ‘crypto-currency trading packages.’ Nearly 200 investors joined Putnam’s mining scheme which was promised huge profits through cryptocurrencies mining on “Modern Money Team” operated mining hardware.

Putnam started the Modern Money Team (MMT) and started offering investments in the “crowd-funding of a powerful cryptocurrency mining operation.” MMT’s sought-after investors were able to buy mining machines, operate them in MMT ‘s facilities, and gain money each month from the successful mining of cryptocurrencies through the mining operation.

Investors who wanted to buy actual mining machines were advised that their machines would be placed and controlled remotely at Putnam’s selected locations and that Putnam or those he employed would monitor all mining activitiesPutnam earned around $3.25 million to nearly two hundred investors through the selling of mining machines and the involvement in the mining activity.

After the mining investment program was no longer economically viable, Putnam began offering investors the option to buy “cryptocurrency trading packages” through MMT. Ramirez managed the crypto investments, Rodriguez was the intermediary, and MMT was run by Putnam, a multi-level marketing professional. The   Investors were further informed that their funds would be kept in Bitfinex3 trading accounts controlled by Ramirez, who will be responsible for trading.

Back investor offices reported weekly earnings until November 2019, and investors were able to make regular withdrawals from their accounts. However, in November 2019, the MMT stopped making the proposed profit payments to investors, and the trading activity was halted.

The SEC also claimed that in November 2019, MMT stopped paying investors but managed to collect funds until 9 March 2020. Defendants also misappropriated investor funds for personal use and made similar payments to Ponzi Schemes to former investors. According to the complaint, the defendants carried out these fraudulent schemes through two Utah companies owned by Putnam, MMT Distributions, LLC, and R&D Global, LLC.

 

New York Judge Allows the Blockchain Association to File Brief in Case Involving Kik and United States SEC

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Cryptocurrency organizations have always had a strenuous relationship with regulatory agencies because of the decisions made by the latter. The US Securities and Exchange Commission [SEC] remains one of the main governing bodies when it comes to crypto and was recently involved in a pushback with regards to Kik.

On 28 April, in spite of objections from the regulatory body, the New York District Court Judge allowed the Blockchain Association to file an amicus for the Kik-SEC case. The SEC had argued that the Blockchain Association had a vested interest in the matter and should not be allowed to participate in the decision-making process. 

The Kik-SEC case had come to such a head that it captured multiple news headlines in the cryptocurrency industry. Judge Alvin K. Hellerstein of the Southeastern District of New York allowed the Blockchain Association to file an amicus so that there was no bias towards either party. The Blockchain Association has denied claims that its members have benefited financially from the case.

Blockchain Association Executive Director Kristin Smith said that the group was proud to execute the filing and would do whatever was necessary to resolve the situation. Members of the Organization also pointed out the hypocrisy in which the SEC considered the amicus to be a group counted as any other trade organization.Smith added that the SEC’s description of the brief was wrong and that the Association wholeheartedly supported the Judge’s decision. She continued:

“The Blockchain Association was proud to file its amicus brief in this matter, and we appreciate the opportunity to speak for the entire industry in supporting sensible regulation. The court system benefits from amicus briefs like ours that place the parties’ evidence and arguments in their broader context, a role played every day by associations, non-governmental organizations and advocacy groups in courts across America.”

At the moment, Kik is not a member of the Blockchain Association, but the relationship between the two dates back to 2019. The Association is currently managing the ‘Defend Crypto’ campaign launched by Kik in 2019, an initiative to raise funds for crypto organizations involved in SEC feuds. Kik contributed $5 million to the fund on their behalf, with another $2 million coming from external donors.

The SEC, at the other part, was against Kik because they believed that all Kin token sales were actually security transactions. Kik rebutted by claiming that all its sales were legitimate and that its public sale transactions were not securities in any form or structure. Since June last year, the legal battle between the two organizations has been going on with a final decision nowhere in sight.

Just recently, both Kik and the SEC filed oppositions to the other party’s motions for summary judgment. The two entities doubled down on their arguments and commented on the legitimacy of the information presented in the court of law. The SEC believed that the processes followed by Kin investors and an underlying common venture in the cryptocurrency industry was enough to swing the case towards their side.

 

 

 

Telegram and SEC Showdown Heats Up As Industry Waits With Bated Breath

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Cryptocurrency organizations have always had clashes with regulatory agencies and as time progresses the winds have been changing. In recent weeks, one major case involving the messaging platform Telegram and the Securities and Exchange Commission [SEC] has taken the case.

Touted to be one of the biggest cases in cryptocurrency history, several sectors of the fintech market, as well as the mainstream market, have sat up to take notice.

The issue pertains to the SEC taking Telegram head-on over its $1.7 billion token sales back in 2018. The Securities and Exchange Commission [SEC] stated that the Telegram had violated investor protection laws during the function. It claimed that Telegram token was actually security and not a currency, thereby subjecting it to a different set of laws.

The ongoing issue touches other things as well, such as the fact that it tests a rare two-part deal structure that the messaging platform used to hide from prying eyes. The SEC faces an uphill battle, however, because Telegram was not a weak opponent. Being used to scammers who swindle money using, Telegram acts as a different ball game after having Wall Street firms on their roster.

Companies like Kleiner Perkins Caufield & Byers and employees from SoftBank and Fortress investment were also a part of the group. Kenneth Herzinger, a partner at Orrick Herrington & Sutcliffe LLP had said:

“This is the biggest SEC cryptocurrency case yet. They have it all out on the line, and they’re pulling out all the stops. Until now, no court has dug into and addressed any of these complex issues before. If the SEC loses, it will certainly ripple through the industry.

Law enforcement agencies in the United States have also been wary of Telegram’s user base. Telegram’s encryption feature was also seen as a concern by the SEC. At one point, some ISIS proponents also used the messaging platform along with protestors in Hong Kong.

Telegram has deflected the claims made by the SEC thoroughly and explained why it skipped it. According to Telegram, it circumvented the SEC because investors did not actually receive the asset known as grams. By the time they receive Grams, the coin would be a commodity and out of its reach. The SEC countered by claiming investors were into the product only because of its profit-making capabilities. This sentiment made it look like an investment rather.

Companies such as GV, the venture capital arm of Alphabet had also considered investing in Telegram’s Grams. The lack of information surrounding this has been the major cause of this uncertainty.