Crypto Ponzi Schemes

On November 4, 2022, the Securities and Exchange Commission (SEC) recently announced charges against three individual defendants operating "The Trade Coin Club," an alleged $295 million Ponzi scheme that had defrauded more than 100,000 investors around the world.

According to the SEC, defendants claimed to have a crypto asset trading bot that made millions of transactions a second, and their investors would receive a guaranteed daily return of 0.35%. However, there was no bot, and investors just received deposits from other investors. And along the way, the defendants kept millions of dollars for themselves.

It's cases like these that have the SEC warning investors to be on the lookout for cryptocurrency Ponzi Schemes.

Of particular concern to the SEC, crypto fraudsters can set up online marketing materials that give them the illusion of legitimacy—and access to a worldwide market. The Trade Coin Club raked in millions of dollars and thousands of investors in just two years.

But once you look past the flashy websites, the crypto Ponzi schemes aren't much different from their predecessors. Crypto fraudsters promise investors high, consistent returns with little-to-no risk. They aren't licensed dealers, and they aren't selling registered securities. They have secret investment strategies they won't divulge, and there's little recordkeeping of what they've done.

And a Ponzi scheme is just as illegal online as it is if it were run out of a boiler room. The defendants can be charged for selling securities as unlicensed broker-dealers, a violation of Section 15 of the Exchange Act.

Then there are the charges relating to the fraud itself. Making false, misleading statements of material facts relating to the sale of securities is a violation of Section 10(b) of the Exchange Act and SEC Rule 10b-5.

Just mailing a prospectus for unregistered securities can result in charges under Section 5 of the Securities Act. And if the prospectus includes false information, that's mail fraud—another violation of the Securities Act.

If you're involved in cryptocurrency sales, and see warning signs of fraud, consider submitting a tip to the SEC Office of the Whistleblower. If your information leads to a successful enforcement action, you may be eligible for a financial bounty.

We have experienced SEC whistleblower lawyers, including a former SEC Enforcement lawyer on our team, and a thorough understanding of how the program operates. Our SEC whistleblower attorneys may be able to help you maximize your opportunity to receive an award. For a no-cost, confidential consultation, call us at 800.975.4345.