The Securities and Exchange Commission (“SEC“) filed a civil complaint against 5 American promoters of the Blockchain protocol known as BitConnect this week. Investors from around the world lost over US$2 billion with BitConnect. The SEC alleges that the defendants conducted an unregistered offering and sale of securities in connection with its native coin and lending program.
BitConnect is iconic with GenZs literally the world over – not in a good way – rather because of the memes created of a promoter allegedly named Carlos Matos, who was the public face of BitConnect.
BitConnect is similar to OneCoin – same formula using some elements of MLM. Like OneCoin, the BitConnect folks issued an initial coin offering (“ICO“), and like OneCoin, they alleged that there was a Blockchain protocol behind it. The ICO was called the BitConnect Coin (“BCC“). You can read about OneCoin here.
The SEC says that BitConnect also created a lending platform (in much the same way as many DeFi platforms do now), and promised holders of Bitcoin and other digital currencies 40% monthly interest for depositing their holdings for lending purposes. BitConnect was not licensed or authorized anywhere to provide online lending services to consumers, or be deposit-taking. Those who sent fiat or Bitcoin to BitConnect for ostensible lending, lost their money.
Eventually, in early 2018, the State of Texas issued a cease and desist order to BitConnect. One of the paid promoters, Trevon Brown, posted on social media, a message to the world not to let a US government shut them down. When the State of North Carolina issued its own cease and desist order, BitConnect sent one of its promoters 200 Bitcoin as a retainer for a securities lawyer (now equal to US$7.4 million). In the following weeks, BitConnect shut down operations.
The SEC says that the ICO promoters earned significant commission from touting investing in BCC or using the lending platform, as follows: Joshua Jeppesen earned US$2.6 million; Craig Grant earned US$1.3 million; Michael Noble earned US$730,000; Ryan Maasen earned US$475,000; and Trevon Brown earned US$480,000.
The founder of BitConnect is an Indian foreign national, whom the SEC declined to name.
The SEC is seeking various forms of relief against the defendants including an order permanently enjoining the defendants from violating US federal securities law and the payment of penalties.