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The Vault
June 2, 2021
SEC Files Suit Against Five Alleged Promoters of Crypto Lending Program
The U.S. Securities and Exchange Commission (“SEC”) brought an action in the United States District Court for the Southern District of New York against five alleged promoters of a digital asset called BitConnect, claiming they promoted the sale of unregistered securities that raised over $2 billion from retail investors last Friday.[1] According to the SEC’s complaint, between January 2017 and January 2018, four of the defendants promoted BitConnect by advertising its “lending program” to retail investors, while receiving a percentage of the funds they obtained, without being registered as broker-dealers with the SEC. Specifically, the SEC alleged these four defendants promoted and touted BitConnect’s “lending program” to prospective investors, including by posting testimonial-style videos to YouTube with a referral link to the “lending program.”
The SEC’s complaint alleges that four of the defendants violated section 15(a) of the Exchange Act and sections 5(a) and 5(c) of the Securities Act, while another defendant aided and abetted securities violations. Section 15(a) of the Exchange Act requires securities brokers to be registered with the SEC or, if they are individuals, to be associated with a brokerage firm registered with the SEC. [2] Sections 5(a) and 5(c) of the Securities Act require an issuer of securities to register offers and sales of those securities with the SEC, absent certain exemptions.[3] The SEC’s complaint seeks injunctive relief, disgorgement plus interest, and civil penalties.
Anyone looking to promote a digital asset should proceed with caution because such actions may constitute a sale of a security. Nelson Mullins’s FinTech and Regulation Practice and Securities & Enforcement Group have extensive experience with digital assets that are securities and in responding to government inquiries and investigations and representing clients in related litigation, and are available to help companies and individuals navigate and respond to these inquiries.
Nelson Mullins can help companies and investors navigate the evolving ICO, cryptocurrency, and blockchain regulatory and legal environment.
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These materials have been prepared for informational purposes only and are not legal advice. This information is not intended to create, and receipt of it does not constitute, an attorney-client relationship. Internet subscribers and online readers should not act upon this information without seeking professional counsel.
