Wednesday, 8 April 2020

Cryptocurrency mining company extracts investors’ money by falsely promising COVID-19 benefit

By Jay Fishman, J.D.

The Alabama Securities Commission and Texas State Securities Board separately ordered a mining company and its agent to stop operating a fraudulent cryptocurrency scheme generated partly from a promise that the Alabama and Texas resident investors’ funds would be donated to UNICEF for medical equipment to help COVID-19 pandemic victims around the world. The company additionally promised the residents that the remainder of the raised funds would be invested in computing power to mine cryptocurrencies, which would yield large returns.

Texas investigation uncovers cryptocurrency scheme. The Texas State Securities Board discovered that the mining company operated a fraudulent cryptocurrency scheme from information the State Securities Board obtained during its investigation. The State Securities Board subsequently passed the following information onto the Alabama Securities Commission:
  • The mining company, through its agent, continuously promised investors that it would donate their funds to UNICEF to help the COVID-19 victims but refused to provide any information verifying the donation.
  • The company promised investors “eye-opening” returns; for example, a $10,000 investment in computing power would return nearly $10,500 per year.
  • The company runs a recession special by offering investors an extra 30 percent of purchased cryptocurrency mining power for an initial $10,000 deposit.
  • The company runs an affiliate program that pays commissions to individuals who recruit new investors, permitting the affiliates to receive 5 percent of the new investors’ deposits.
  • The company and agent failed to disclose the principals or financials of the cryptocurrency mining operation.
  • The mining company is a “dealer” under the Texas Securities Act; the agent is an “agent of a dealer” under the Act; and the cryptocurrency is a “security” under the Act yet none were registered as required by the Act to sell the cryptocurrency in Texas.
  • The mining company has already raised $18 million from Texas resident investors. 
These administrative orders are Nos. CD-2020-0007 and ENF-20-CDO-1801.

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