We analyzed five recent crypto schemes as reported by the SEC. As the cryptocurrency market grows rapidly, it also opens the door for fraudulent activities and unregistered dealings. In this blog post, we'll examine five recent SEC actions against crypto companies and share top tips to safeguard your investments in this ever-evolving landscape.
Explore our comprehensive analysis of recent SEC enforcement actions in the crypto industry, shedding light on fraudulent schemes, unregistered securities.
The cases links are as follows:
Market makers separately charged as unregistered dealers.
Beaxy Platform and its executives were charged for failing to register as a national securities exchange, broker, and clearing agency. The founder, Artak Hamazaspyan, was charged for raising $8 million in an unregistered offering of the Beaxy token (BXY) and misappropriating at least $900,000 for personal use including gambling. Market makers operating on the Beaxy Platform were charged as unregistered dealers.
March 22, 2023. Eight celebrities charged for illegal touting crypto asset securities including Lindsay Lohan and Jake Paul.
The SEC has charged Justin Sun and his companies, Tron Foundation Limited, BitTorrent Foundation Ltd., and Rainberry Inc., for unregistered offer and sale of crypto asset securities Tronix (TRX) and BitTorrent (BTT).
Sun is also accused of market manipulation and paying celebrities, including Lindsay Lohan, Jake Paul, Soulja Boy, Austin Mahone, Kendra Lust, Lil Yachty, Ne-Yo, and Akon, to promote TRX and BTT without proper disclosure. Eight celebrities were charged for illegal promotion.
Sun allegedly violated Section 5 of the Securities Act and generated $31 million from illegal offers and sales.
Except for Cortez Way and Mahone, the celebrities facing charges agreed to collectively pay over $400,000 in disgorgement, interest, and penalties to resolve the case without admitting or denying the SEC's allegations.
Feb 28th, 2023. SEC Charges Nishad Singh with Defrauding Investors in Crypto Asset Trading Platform FTX.
Nishad Singh, the former Co-Lead Engineer of FTX Trading Ltd. (FTX), was charged for his role in a multiyear scheme to defraud equity investors in FTX. Singh created software code that allowed FTX customer funds to be diverted to Alameda Research, a crypto hedge fund owned by Bankman-Fried and Wang, despite false assurances by Bankman-Fried to investors.
As FTX neared collapse, Singh withdrew approximately $6 million for personal use.
Singh now faces multiple charges, and in parallel actions, the U.S. Attorney's Office for the Southern District of New York and the CFTC also announced charges against him. Singh is cooperating with the SEC's ongoing investigation.
SEC Initiates Emergency Measures Against Miami Investment Advisor BKCoin and Leader Kevin Kang Over $100 Million Crypto Fraud Scheme.
Miami-based investment adviser BKCoin Management LLC and its principal, Kevin Kang, were involved in a alleged crypto asset fraud scheme. BKCoin raised approximately $100 million from at least 55 investors to invest in crypto assets, but instead used some of the money to make Ponzi-like payments and for personal use.
The SEC's complaint alleges that they misappropriated funds, created false documents, and engaged in Ponzi-like conduct. The complaint seeks permanent injunctions, disgorgement, prejudgment interest, civil penalties, officer and director bars, and conduct-based injunctions against the defendants.
Kraken to Discontinue Unregistered Offer and Sale of Crypto Asset Staking-As-A-Service Program and Pay $30 Million to Settle SEC Charges.
The SEC has charged Payward Ventures, Inc. and Payward Trading Ltd., both known as Kraken, for failing to register their crypto asset staking-as-a-service program, which offered advertised annual investment returns of up to 21%. To settle the charges, the two Kraken entities agreed to cease offering or selling securities through crypto asset staking services or programs and pay $30 million in disgorgement, prejudgment interest, and civil penalties. The SEC emphasized the need for proper disclosures and safeguards by crypto intermediaries offering investment contracts in exchange for investors' tokens.
12 Tips to avoid being scammed.
Research: Investigate the project, team, and technology behind any cryptocurrency before investing. Check for regulatory compliance and proper disclosure of information.
Avoid unregistered offers: Be cautious of cryptocurrencies offered and sold through unregistered programs or platforms, as they may not comply with registration and disclosure requirements.
Beware of market manipulation: Look out for signs of wash trading or artificial inflation of trading volumes, as these practices can mislead investors about the true market activity of a cryptocurrency.
Celebrity endorsements: Treat celebrity endorsements with skepticism, especially if they do not disclose any compensation for promoting a particular cryptocurrency. Always conduct your own research instead of relying solely on endorsements.
Transparency: Ensure that the project behind the cryptocurrency is transparent about its operations, intentions, and financial arrangements, including any paid promotions or partnerships. You never know when a CEO of a crypto asset will use your investment money to gamble.
Regulatory compliance: Confirm that the project complies with relevant securities laws and regulations in your jurisdiction, as this helps protect investors from potential fraud or misrepresentation.
Verify registration: Before using a crypto asset trading platform or investing in a token offering, ensure that the platform, broker, and clearing agency are registered with the appropriate regulatory authorities, such as the SEC.
Research the team: Investigate the background and credibility of the platform's executives and the project's founders. Look for transparency, experience, and a history of ethical conduct.
Check for compliance: Ensure that the platform and project follow applicable laws and regulations. This includes the proper registration of securities, adhering to disclosure requirements, and abiding by investor protection measures.
Assess the project's fundamentals: Thoroughly analyze the project's whitepaper, the token's utility, the technology behind it, and the overall business model. Make sure you understand the project and its potential for success.
Be cautious with promotional content: Be wary of extravagant marketing campaigns, as they can sometimes be misleading. Remember that legitimate projects will generally focus on their technology and value proposition rather than excessive promotion.
Avoid projects with unrealistic promises: If a project promises unusually high returns or guarantees profits, it could be a scam. Legitimate investments typically do not make such promises.
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