Wednesday, May 30, 2018

No. 268: Bitcoin and Other Cryptocurrencies—A Report from the Texas State Securities Board

In No. 34 (March 3, 2014) found here, I discussed Bitcoin, the most prominent example of virtual currencies, or cryptocurrencies. In the final sentence of the post I said I would not touch Bitcoin or any other virtual currency with a ten-foot pole.

On April 10, 2018, the Texas State Securities Board (TSSB) announced publication of an enforcement report entitled "Widespread Fraud Found in Cryptocurrency Offerings." Examples of other cryptocurrencies, besides Bitcoin, are Ethereum, Litecoin, and Ripple. Because the 14-page report is copyrighted, I asked TSSB for permission to offer it without charge to my readers. A spokesman expressed a preference for me to provide a link. The report may be found here.

A Few Findings
Over four weeks beginning December 18, 2017, the enforcement division of TSSB began 32 investigations. Here are some findings:
  • No promoters were registered to sell securities in Texas, a violation of the Texas Securities Act;
  • 30 promoters were broadly using websites, social media, and online advertising to market to Texans;
  • Seven promoters were offering securities tied to a new cryptocurrency;
  • At least five promoters all but ignored investing risks by guaranteeing returns, some as high as 40% per month;
  • Only 11 promoters provided potential investors with a physical address;
  • At least six promoters were actively recruiting sales agents without verifying they were registered with the Securities Commissioner; and
  • Six of the offerings involved payment of a commission to investors who recruited new investors into the scheme.
Two Emergency Actions
On May 8, 2018, TSSB announced actions taken against two cryptocurrency firms. TSSB said the orders bring to nine the number of actions taken since the beginning of the investigation.

One of the recent actions is an emergency cease and desist order directed at Bitcoin Trading & Cloud Mining Ltd. (BTCRUSH) and four principals. BTCRUSH and three principals are based in London, England, and the other principal is based in Panama City, Panama.

The other recent action is an emergency cease and desist order directed at Forex EA & Bitcoin Investment LLC (Forex) and two principals. Forex and its principals are based in New York City.

The Reaction from BTCRUSH
On May 11 TSSB reported a development immediately following the cease and desist order directed at BTCRUSH. TSSB said the firm amended the terms of service on its website to say that "use of its current Platform by U.S. citizens and permanent residents is strictly prohibited."

A Third Emergency Action
On May 15 TSSB announced an emergency cease and desist order directed at Wind Wide Coin Inc. and three principals. Wind Wide and its principals are based in Houston, Texas and Lake City, Florida.

Available Material
I urge readers to familiarize themselves with the TSSB report, to which I have provided a link above. I am also offering a complimentary 22-page PDF consisting of the emergency cease and desist order directed at BTCRUSH (8 pages), the emergency cease and desist order directed at Forex (6 pages), and the emergency cease and desist order directed at Wind Wide (8 pages). Email and ask for the May 2018 package about the TSSB cryptocurrency investigation.