On Monday, the Securities and Exchange Commission (SEC) announced that it filed a complaint in the Eastern District of New York and charged three individuals “with defrauding hundreds of retail investors out of more than $11 million through two fraudulent and unregistered digital asset securities offerings.”
The SEC alleged that from December 2017 to May 2018, the defendants “fraudulently induced investors to buy digital asset securities” from Start Options and Bitcoiin2Gen. Accordingly, from December 2017 through late January 2018, the defendants purportedly “touted Start Options’ purported digital asset mining and trading platform,” falsely claiming that it was “‘the largest Bitcoin exchange in euro volume and liquidity’ and ‘consistently rated the best and most secure Bitcoin exchange by independent news media.’” Additionally, the SEC averred that in January 2018, the defendants “promoted Bitcoiin2Gen’s unregistered initial coin offering (ICO) of digital asset securities known as B2G tokens.” The defendants allegedly created fraudulent promotional material to share with the public and potential investors. Specifically, the SEC claimed that these materials contained various false statements, such as “that the B2G tokens would be deliverable on the Ethereum blockchain, that the invested funds would be used to develop a coin that was ‘mineable,’ and that the tokens would be tradeable on a proprietary digital asset trading platform at the platform’s ‘launch’ in early April 2018.” However, in actuality, the SEC stated that these claims about B2G tokens were false because “Bitcoiin2Gen was a sham”; thus, the defendants purportedly misappropriated more than $11.4 million of investor funds from more than 460 investors “for their own personal benefit.”
“The conduct alleged in this action was a blatant attempt to victimize those interested in digital asset technology and these defendants should be held accountable,” Kristina Littman, Chief of the SEC Enforcement Division’s Cyber Unit, said. “In reality, we allege, these ventures were fraudulent enterprises aimed simply at misappropriating funds from investors.”
The defendants are accused of violating Sections 5(a), 5(c), and 17(a) of the Securities Act of 1933 (Securities Act); Section 10(b) of the Securities Exchange Act of 1934 (Exchange Act) and Rule 10b-5 promulgated thereunder as well as Section 15(a) of the Exchange Act. Additionally, the defendants are accused of aiding and abetting these purported violations.
The SEC has sought to permanently enjoin the defendants from further violations and other related conduct; an order for the disgorgement of all ill-gotten gains; for the defendants to pay civil penalties; an order permanently prohibiting the defendants from participating, either directly or indirectly, in the “issuance, purchase, offer, or sale of any digital asset security”; permanently prohibiting the defendants from acting as an officer or director of a public company; and for other relief.