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INDUSTRY UPDATES & INSIGHTS

June 5, 2020

SEC Charges Prompt Investment Returns | Multi-Million-Dollar Meta-Scam | Cross-Border Payments | Bitcoin Laundering

  • BitClave Adheres to SEC’s Request to Return $25.5 Million from ICO
  • The $9 Million-Dollar META 1 Coin Scam Continues to Unfold
  • The USMCA Increases Collaboration Between Nations on Cross-Border Payments
  • New Yorker Charged in Payment Card Theft Case
  • ICYMI: Read Spring Report Spring Cryptocurrency Crime and Anti-Money Laundering Report 

 

BitClave Returns Over $25.5M to Investors Amid Charges from SEC

On May 28, the SEC announced that it was bringing charges against BitClave, a California-based cryptocurrency startup, for selling unregistered securities in its initial coin offering. The coins in question, known as the Consumer Activity Tokens, were purchased by about 9,500 investors. The firm, without admitting to or denying the SEC’s findings, agreed to return the $25.5 million along with a prejudgment interest of $3.4 million and a penalty of $400,000.

The SEC believes this to be an unregistered sale of securities because BitClave created the expectation that its coins would appreciate over time. The SEC press release stated, “BitClave planned to use the ICO proceeds to develop, administer, and market a blockchain-based search platform for targeted consumer advertising. BitClave emphasized its expectation that the tokens would increase in value, and took steps to make the tokens available for trading on third-party digital asset trading platforms after the ICO.”

Kristina Littman, Chief of the SEC Enforcement Division’s Cyber Unit, affirmed that, “Issuers of securities, traditional or digital, must comply with the registration requirements of the federal securities laws.”

Why it Matters: Regulations are meant to protect investors from scams, frauds, and bad investments. By failing to register as a security while suggesting purchasers would see their tokens appreciate in value, BitClave was in violation of SEC securities laws. Blockchain projects would be wise to ensure they are in compliance with the SEC prior to launching a token sale that could lead them to a similar fate. Last year, the SEC released a framework on the “Howey Test” to help ICO issuers determine whether a virtual asset is a security. The Howey Test defines an investment contract as one where a party: a) invests money, b) in a common enterprise, c) with the expectation of profiting, d) based on the efforts of a third party.

Read the SEC press release: Unregistered $25.5 Million ICO Issuer to Return Money for Distribution to Investors

Read the Cointelegraph coverage: SEC Orders ICO Startup to Return $25.5M to Investors

Explore the Howey Test: https://www.sec.gov/corpfin/framework-investment-contract-analysis-digital-assets

 

META 1 Coin: A $9M Crypto Scam Backed by a US Senator and a Psychic YouTuber

On March 16, the SEC filed charges against META 1 Coin, alleging in a formal court document that the company was “nothing but a vehicle to steal investors’ money.” META 1’s assets were frozen the next day as the Commission accused META 1 of raising over $9 million from at least 500 investors, across 40 states and 6 foreign countries. Despite this, META 1 Coin’s website remains active and its social media accounts continue to attempt to attract investors.

While the case is an ongoing matter, so are META 1’s attempts to deny any wrongdoing. META 1 has claimed in court documents that the SEC is fraudulent and that their coin is backed by $2 billion in gold from their Nevada mine. However, according to the SEC, META 1 Coin does not own the mine or have any claim to it, nor does the mine produce gold.

Among the founders of this scam corporation is former Washington state senator Dave Schmidt, who was previously found to have misappropriated over $32,000 in campaign funds. Another board member, Nicole Bowdler, is a psychic YouTuber and self-described “Earth Angel incarnated to help humanity.” She revealed to her audience that she communicated with Metatron and Abraham Lincoln and that they had revealed to her what would happen in the world’s financial and economic structure over the next 20 years. According to the Commission, none of META 1’s board was licensed to sell securities or registered with the SEC “in any capacity.”

Investor funds had been funneled into personal accounts and phony trusts.

According to the Daily Beast, “One manager allegedly used over $510,000 to buy a house and $215,000 to buy a Ferrari.” In response to the SEC, the company suggested they were “not bound by any laws.”

Read the story in The Daily Beast: https://www.thedailybeast.com/the-dollar9-million-crypto-scam-backed-by-a-state-senator-and-a-youtube-psychic

Read about David Schmidt: https://pdc-case-tracking.s3-us-gov-west-1.amazonaws.com/2252/11018.Order.pdf

 

The USMCA Paves the Way for Cross-Border FinTech Success

The historic United States-Mexico-Canada Agreement (USMCA) is both a trade agreement and a multinational fintech treaty. The USMCA will provide for financial and digital trade regulations that equalize the treatment of FinTech companies across borders.

This is a timely agreement, as more than $26 billion per year travels across the US-Mexico border, and the development and use of cryptocurrencies have provided an extremely fast way to transfer funds across the border. This treaty is meant to alleviate the costs of numerous competing and costly regulatory conditions between nations.

Why It Matters: This USMCA will help to increase collaboration between crypto innovators in the US and Mexico by aligning its members with the goals of compatibility through consistent standards for the handling and sharing of customer data, prohibiting governments from discriminating against foreign fintech companies, and by making it easier for fintech companies to provide services in other USMCA countries. Notably, the agreement guarantees financial institutions access to the payment and clearing systems of all other member countries. Another important facet of the agreement is the ability of governments to create regulatory sandboxes to incentivize experimentation with the new technology under relaxed regulatory conditions.

Read more about the USMCA in Lexology: https://www.lexology.com/library/detail.aspx?g=354da0d5-ad87-46b0-a845-552c845523f7

 

Payment Card Indictment Includes Crypto Laundering Scheme

On May 26, a 28-year-old New York man was charged for payment card theft and a Bitcoin-fueled money laundering scheme. Between 2014 and 2016, Vitalii Antonenko allegedly targeted online businesses, including a hospitality business and a research nonprofit in Massachusetts, stealing credit card data which he subsequently sold on the dark market. Antonenko is accused of working with two accomplices to launder the proceeds of the sale using Bitcoin.

Read the coverage in Coindesk: https://www.coindesk.com/vitalii-antonenko-bitcoin-money-laundering

Read the DOJ announcement: https://www.justice.gov/usao-ma/pr/new-york-city-man-charged-hacking-credit-card-trafficking-and-money-laundering

 

In Case You Missed It – The Spring Report is Live!

We published our Spring 2020 Cryptocurrency Crime and Anti-Money Laundering Report on Tuesday. It’s packed with insights and original research, including details of the nearly $1.4 billion in crypto hacks, threats, and frauds occurring since January 1. Reuters reporter Gertrude Chavez-Dreyfuss broke the news of the report.

Read the article: https://www.reuters.com/article/us-crypto-currencies-crime/amid-pandemic-crypto-crime-surges-in-first-5-months-ciphertrace-idUSKBN2391N2

Read it online or download the full report: https://ciphertrace.com/spring-2020-cryptocurrency-anti-money-laundering-report/

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