Earlier this week, the Texas Securities Commissioner (TSC) issued an Emergency Cease and Desist Order which effectively shut down the popular cryptocurrency platform, Bitconnect. The company operates as a peer-to-peer lending platform based on bitcoin. However, the firm, which boasts a $2.3 billion market cap, has long been plagued with accusations of fraud.
Since the Cease and Desist order was issued, Bitconnect released an official press statement which acknowledged the order, and noted that it would halt several investment programs run by Bitconnect.
The company has long since been haunted by accusations of being a scam. According to experts and crypto enthusiasts, the claims made by Bitconnect seemed to border on being a blatant Ponzi scheme.
According to the TSC, Bitconnect attracted investors by claiming that their investment programs could deliver annual returns of 100% or more. The TSC added that Bitconnect requires investors to use bitcoin to participate in Bitconnect-based investment programs. The TSC specifically cited the program known as the Bitconnect Lending Program, where investors are required to buy Bitconnect Coins which in turn are used towards the Bitconnect Trading Bot, which promises returns of 40% per month.
Several prominent figures in the finance world from Erik Voorhees to Andreas Antonopoulos have also advised against participating in Bitconnect. Earlier, Antonopoulos’s Youtube channel was fraught with advertisements for Bitconnect, which caused him to plead with his Youtube subscribers and followers on social media to help him untangle himself from Bitconnect’s brand. Also, Voorhees flat-out denounced Bitconnect as a scam in a Tweet. Another finance leader, Jameson Lopp, also took to Twitter to advise followers against the fraudulent platform.
Bitconnect is advertising on my YouTube channel. I can't stop them. I've heard that (but can't confirm) that bitconnect may be a pyramid scheme. Be careful out there
— Andreas M. Antonopoulos (@aantonop) November 14, 2017
The state of Texas has gained a reputation of being severe in its law enforcement, making the latest cease and desist order hardly surprising. The process was not particularly hard for the TSC, as the company offers investors investment in the form of securities, but failed to follow registering policies as laid out by the Texas Securities Act and State Securities Board Rules and Regulations. What’s more, Bitconnect is not registered to sell their products in the state of Texas. Bitconnect is allowed to appeal this decision.
Texas is also known for taking a somewhat aggressive stance against crypto and fintech startups. In 2017, Texas signed another cease and desist order against USI-Tech Limited, a Dubai-based cryptocurrency mining investment company.
Currently, the majority of regulating bodies worldwide seem much more concerned with the issue of initial coin offerings (ICO) and the potential damage it can cause. According to a TSC press release, representatives from Bitconnect are pursuing Texas-based investors as well as other US citizens using a proactive marketing campaign on social media. While it seems odd for Texas to pursue the British firm, the regulator maintains that none of the firm’s products are registered with the appropriate authorities, which justifies their order.
The TSC also cited the example of an upcoming ICO to take place on the Bitconnect platform and the way in which it is marketed. According to the press release, the company uses online advertising to recruit sales representatives and promises them a commission on every sale.
Also, Travis J. Iles, a securities commissioner, noted that there is a troubling lack of information available on Bitconnect. The company has disclosed almost no information about their investment strategy, principals, or financial condition. Currently, the company has not even revealed its physical business address.
So far, Bitconnect managed to circumvent this troubling prospect by comparing their lack of information to the same lack of information about the founding father of cryptocurrency, Satoshi Nakamoto, however, considering this latest cease and desist order, this method is likely to prove insufficient in the future.