YouTube, a video-sharing site owned by Google, just found itself involved in a lawsuit filed with the Southern District Court of Florida, on July 3, against BitConnect, which is a cryptocurrency lending platform built over a Ponzi scheme.
In fact, co-lead plaintiffs Albert Parks, and Faramarz Shemirani filed the lawsuit on behalf of all other persons that went victim of BitConnect, while demanding a trial by jury. The document alleged that victims of the fraud were driven to BitConnect Investment Programs, mainly as a result of the partnerships that affiliate promoters of BitConnect had with YouTube to publish and monetize their video content.
The original lawsuit was filed on January 24, wherein six former investors were seeking compensation for the money they lost while investing in the then discovered to be a Ponzi Scheme. The complaint was founded on the basis that BitConnect was liable of selling unregistered securities in the form of BCC or other investment contracts offered through the BitConnect Investment Programs. Other counts include unjust enrichment, fraudulent inducement, breach/rescission of the contract, and civil conspiracy.
A little over a week before collapsing on January 17, BitConnect reached a total market cap of over 2.6 billion and its token value exceeded $400. As of press time, BCC is valued at around $0.44.
YouTube is being tried for failing to protect its users and for being negligent in allowing the spread of the promotional videos uploaded by the BitConnect affiliates. The documents pointed out that YouTube allowed over 70,000 hours of unedited content to be published, generating over 58,000,000 views and “luring hundreds if not hundreds of thousands of victims.”
The lawsuit went on to claim:
“By enacting policies designed to prevent bad actors (such as those soliciting investments in fraudulent Ponzi schemes) from disseminating harmful, offensive or inappropriate content through its platform, YOUTUBE owed, by its own assumption, Plaintiffs, and the Class a duty to reasonable care to prevent such content from harming its users.”
Background of the Lawsuit
BitConnect, a Bitcoin lending platform, claims to be:
“An open-source all-in-one Bitcoin and crypto community platform designed to provide multiple investment opportunities with cryptocurrency education where it is entirely possible to find the independence we all desire, in a community of like-minded, freedom-loving individuals, who, like you, are seeking the possibility of income stability in a very unstable world.”
The platform launched its website in late 2016 after successfully conducting an ICO that went on from November 2016 to January 2017. Shortly after that, the website featured various “investment programs” including lending, staking, and the affiliate/referral programs.
BitConnect, then, embarked on an aggressive digital marketing campaign on YouTube and other social media platforms like Facebook, Reddit, and Twitter, promoting their business and rushing investors into the scheme.
The company described its business model for the lending program as an “investment option that involves profiting from the BitConnect trading bot and volatility software.”
Needless to say that there was neither a bot nor a volatility assessment metric and that the whole project was built over a century-old Ponzi scheme.
The Staking program, on the other hand, prompted investors to buy and hold BCC, which is the company’s proprietary token, and get interest rates on their “staked” tokens of up to 10% per month over a given period. The compensation was sold to be granted through a process called “Proof of Stake Minting.” The program claimed BCC to be an “interest bearing asset with 120% return per year.”
Besides the above programs, which operated on a Ponzi scheme, BitConnect featured a referral program built over a pyramid scheme. The referral program “affiliates” would earn additional income for referring additional investors.
The document named defendants Arcaro, James, Hildreth, Grant, Cryptonick and Massen to be the most successful affiliate marketers, and to have perceived salaries and commissions for their role in attracting more victims into the scheme.
Is Facebook Going to Be Added Next?
The document stated that the director and other affiliate promoters solicited BitConnect investors in the U.S and around the world through other social media platforms rather than just YouTube. In fact, it named Facebook, Reddit, and Twitter as playing a pivotal role in funneling down “hundreds if not thousands” of potential investors into the website.
Furthermore, under the “other liable Persons/Entities” section, the documents emphasized the fact that there are likely other parties who may also be liable to the plaintiffs. However, it emphasized that, at the time being, plaintiffs lack specific facts that permit them to name those “other parties” as defendants.
The lawsuit concluded:
“By not naming such persons or entities at this time, Plaintiffs are not waiving their right to amend this pleading to add such parties, should the facts warrant adding such parties.”