The Alabama Security Commission (ASC) has issued cease and desist orders in five enforcement proceedings since late April as part of an international crackdown on fraudulent initial coin offerings (ICOs) and cryptocurrency-related investment products. In a release describing the actions, ASC Director Joseph Borg, observed “The actions announced today are just the tip of the iceberg.” The sweep is being coordinated by the North American Securities Administrators Association (NASAA), of which the ASC is a member.
Cease and desist orders. Each of the enforcement actions brought by the ASC contained allegations that the respective respondent failed to register securities as required or otherwise qualify for an exemption from registration. Moreover, each matter contained allegations that the applicable respondent made materially misleading statements or omitted material facts. A summary of those matters is as follows:
- Chain Group Escrow Service (CGES) purported to conduct business as an internet-based escrow company and located in Kirkland, Washington. In the cease and desist order, CGES claimed to pay investors 0.2 percent per day, “guaranteed,” over a 500-day period.
- Extrabit Ltd. (EXB) purported to conduct business as a cryptocurrency mining firm based in Los Angeles, California. According to the cease and desist order, EXB promised a 185 percent return on investment every quarter for investors who maintain a positive balance in their EXB wallet.
- Leverage (LEV) is a technology company located in Los Angeles, California. According to the cease and desist order , LEV claimed that an investor may store the LVP coins, and any other cryptocurrencies in the "platform wallet" and earn a variable, daily interest rate (0.5 percent-2.1 percent) determined by the length of the investment period and the amount of staked capital.
- Pooltrade represents itself as an internet-based business with located in Los Angeles, California. According to the cease and desist order, the Pooltrade website made no representations concerning the type of investment fund or interest-generating vehicle was being offered. In addition, Pooltrade omitted a material fact-that the pooled investment plans are securities and are not registered with the Commission.
- Platinum Coin (“PLATINUM”) represents itself as an internet based business located in Miami, Florida. According to the cease and desist order, the PLATINUM white paper advertised “a "promise" to pay"... at least 320 percent per annum on the funds invested in them." The white paper also claimed that the 320 percent return was based on a "pilot model" that was derived from marketing and mathematical specialist that were hired by PLATINUM.
According to its release, the ASC has joined with more than 40 other state and provincial securities regulators in the United States and Canada in “Operation Cryptosweep,” resulting in nearly 70 inquiries and investigations and 35 pending or completed enforcement actions since the beginning of May. NASAA members are conducting additional investigations into potentially fraudulent conduct that may result in additional enforcement actions. These actions are in addition to more than a dozen enforcement actions previously undertaken by NASAA members regarding these types of products.
A critical component of “Operation Cryptosweep” is raising public awareness of the risks associated with ICOs and cryptocurrency-related investment products. “Not every ICO or cryptocurrency-related investment is fraudulent, but we urge investors to approach any initial coin offering or cryptocurrency-related investment product with extreme caution,” Borg said.
The cases are No. CD-2018-0003, No. CD-2018-0004, No. CD-2018-0005, No. CD-2018-0006, and No. CD-2018-0007.