Cryptocurrency

September 29, 2017

The Securities and Exchange Commission today charged Maksim Zaslavskiy and his companies with defrauding investors in a pair of so-called initial coin offerings (ICOs) purportedly backed by investments in real estate and diamonds. The SEC alleges that Zaslavskiy and his companies have been selling unregistered securities, and the digital tokens or coins being peddled don't really exist. According to the SEC's complaint, investors in REcoin Group Foundation and DRC World (also known as Diamond Reserve Club) have been told they can expect sizeable returns from the companies' operations when neither has any real operations. Zaslavskiy allegedly touted REcoin as "The First Ever Cryptocurrency Backed by Real Estate."  Alleged misstatements to REcoin investors included that the company had a "team of lawyers, professionals, brokers, and accountants" that would invest REcoin's ICO proceeds into real estate when in fact none had been hired or even consulted. Zaslavskiy and REcoin allegedly misrepresented they had raised between $2 million and $4 million from investors when the actual amount is approximately $300,000. SEC

September 21, 2017

The U.S. Commodity Futures Trading Commission (CFTC) today announced the filing of a federal civil enforcement action in the U.S. District Court for the Southern District of New York against Defendants Nicholas Gelfman, of Brooklyn, New York, and Gelfman Blueprint, Inc. (GBI), a New York corporation, charging them with fraud, misappropriation, and issuing false account statements in connection with solicited investments in Bitcoin, a virtual currency. The CFTC Complaint alleges that from approximately January 2014 through approximately January 2016, GBI and Gelfman, company Chief Executive Officer and Head Trader, operated a Bitcoin Ponzi scheme in which they fraudulently solicited more than $600,000 from approximately 80 persons, supposedly for placement in a pooled commodity fund that purportedly employed a high-frequency, algorithmic trading strategy, executed by Defendants’ computer trading program called “Jigsaw.” In fact, as charged in the CFTC Complaint, the strategy was fake, the purported performance reports were false, and — as in all Ponzi schemes — payouts of supposed profits to GBI Customers in actuality consisted of other customers’ misappropriated funds. CFTC

June 30, 2017

The Securities and Exchange Commission today filed fraud charges against the clandestine founder of a purported Bitcoin platform and a chain of co-working spaces located in former bars and restaurants, alleging that he bilked investors in both companies while hiding his connection given his checkered past with regulators in the U.K.  The SEC alleges that Renwick Haddow, a U.K. citizen living in New York, created a broker-dealer and did not register the firm with the SEC as required under the federal securities laws.  Haddow allegedly used sales representatives to cold call potential investors and sell securities in Bitcoin Store Inc. and Bar Works Inc. According to the SEC’s complaint, offering materials presented to investors in both companies touted the backgrounds of senior executives who do not appear to exist.  The materials also misrepresented other key facts about both companies’ operations.  Haddow allegedly diverted more than 80 percent of the in funds raised by the broker-dealer for the Bitcoin Store, and sent more than $4 million from the Bar Works bank accounts to one or more accounts in Mauritius and $1 million to one or more accounts in Morocco. SEC

June 2, 2016

The CFTC ordered Hong Kong-based bitcoin exchange, BFXNA Inc. d/b/a Bitfinex to pay a $75,000 penalty for offering illegal off-exchange financed retail commodity transactions in bitcoin and other cryptocurrencies, and for failing to register as a Futures Commission Merchant.  CFTC

December 1, 2015

The SEC charged “Bitcoin mining” companies GAW Miners andZenMiner, and their founder, Homero Joshua Garza, with conducting a Ponzi scheme to defraud investors.  Bitcoin “mining” means to apply computer power to complex equations that verify a group of transactions in a virtual currency.  The first computer to solve an equation is awarded new units of the virtual currency.  The SEC’s complaint alleges that Garza, through GAW Miners and Zen Miners, purported to offer shares of a digital Bitcoin mining operation.  In reality, the companies did not own enough computer power for the mining it promised to conduct.  Therefore, most investors paid for a share of computing power that never existed.  Returns paid to some investors came from proceeds generated from sales to other investors.  SEC