After Coming For Ripple, Feds Launch Legal Attack On Bitconnect Crypto Ponzi Scheme

After Coming For Ripple, Feds Launch Legal Attack On Bitconnect Crypto Ponzi Scheme


Craig Grant, left, and Trevon James, right, two of five investors charged by the SEC for alleged involvement in the Bitconnect crypto platform that collapsed in 2018. Image: Facebook

The Securities and Exchange Commission has charged five people connected to Bitconnect — a lending and exchange crypto platform that collapsed in 2018 — with promoting an unregistered digital asset securities offering that raised more than $2 billion from retail investors.

This follows a Dec. 2 SEC lawsuit against Ripple Labs and two of its executives, who allegedly offered and sold more than $1.38 billion of digital asset XRP without registering as a security or getting an exemption. Ripple denied that XRP is a security or that it violated securities laws. At the heart of the case is whether or not XRP is an “investment contract” and therefore a security.

The SEC complaint against Bitconnect, filed in the Southern District of New York, charged that from January 2017 to January 2018, BitConnect used a network of promoters to market and sell securities in its “lending program.” These included U.S.-based Trevon Brown (a.k.a. Trevon James), Craig Grant, Ryan Maasen, and Michael Noble (a.k.a. Michael Crypto).

The promoters offered and sold securities without registering with the SEC and without being registered as broker-dealers, as federal securities law requires. The promoters advertised the merits of investing in BitConnect with testimonial-style videos on YouTube, sometimes multiple times a day. Promoters received commissions based on their success in soliciting investor funds, according to the SEC complaint.

“We will seek to hold accountable those who illegally profit by capitalizing on the public’s interest in digital assets,” said Lara Shalov Mehraban, associate regional director of SEC’s New York Regional Office, in a press release. The complaint is seeking civil penalties.

No criminal complaints have been filed, according to Coindesk. The FBI has been investigating Bitconnect for the last three years. James said in March 2018 that he had spoken with FBI agents, and the federal investigator posted a notice in 2019 asking for investors to reach out.

In January 2018, investors who lost money with Bitconnect filed a class-action lawsuit in the Southern District of Florida against James, Grant, and others connected to the promotion of it, BehindMLM reported. The lawsuit claimed that Bitconnect was “a Ponzi scheme,” had “numerous securities laws violations,” and thousands upon thousands of “investors who lost 90+% of their holdings at BitConnect.”

A Ponzi scheme is an investment scam that promises investors high rates of return with little risk. It uses new investors’ funds to pay earlier investors. The fraud eventually unravels when the flood of new investors, attracted by promises of easy money, dries up and there isn’t enough money to go around.

BitConnect’s business model guaranteed a monthly 40-percent return on investment, regardless of market performance of the fluctuating price of cryptocurrency, BehindMLM reported. “Moreover, regardless of the amount of the initial investment, each investor was promised a 1 percent return on investment on a daily basis, which BitConnect purported would be generated by its own proprietary trading bot and volatility software – a promise that would turn a $1,000 investment into a $50 million return within three years of daily compounded interest.” The Florida lawsuit sought to recover $771,000 in losses.

Bitconnect collapsed in 2018 after state regulators in Texas and North Carolina filed cease-and-desist letters against it, Coindesk reported.

When the SEC announced the complaint publicly on Friday, Trevon James, one of the five charged by the SEC, tweeted, “I just became a villain again.”

James is the founder of Ourglass, described in his whitepaper as a fully decentralized, frictionless, yield producing, artificially intelligent token on the Binance Smart Chain offering automated DeFi rewards to holders.

James’ “villain” tweet found some support on Twitter, along with its share of criticism.

“It’s crazy that after all these years they do this shit now that they see you have something good going on – it’s sad that they don’t want to see good people win….,” therealashlii @bitcoinshawty1 tweeted.

“They let white dudes run a muck in the crypto space shits ridiculous,” MoorCrypto tweeted

“Thousands of investors lost money on BitConnect, but promoters made money, SEC says,” Dave Michaels
tweeted @davidamichaels.


Listen to GHOGH with Jamarlin Martin | Episode 74: Jamarlin Martin Jamarlin returns for a new season of the GHOGH podcast to discuss Bitcoin, bubbles, and Biden. He talks about the risk factors for Bitcoin as an investment asset including origin risk, speculative market structure, regulatory, and environment. Are broader financial markets in a massive speculative bubble?