The North Dakota Securities Commissioner has issued a cease and desist order against Union Bank Payment Coin, over suggestions it had been promoting fraudulent securities in the form of its recent initial coin offering (ICO).
The order was issued against the firm’s directors, officers, employees and agents concerning the ICO, with the suggestion that it could constitute a security. As such, failure to register the ICO with the appropriate authorities would constitute a serious and criminal breach of securities laws.
The development follows on from a wider crackdown on illicit ICOs known as Operation Cryptosweep. The investigation brings together regulators across 40 different states in the US and Canada, as part of a wider enforcement drive against unregistered ICOs.
On the Union Bank Payment Coin website, the token is described as the “world’s first security token backed by a fully licensed bank.”
The website shares many similarities with Union Bank AG, a Lichtenstein-based bank. However, the website itself has an IP address that has been traced to an individual in Russia, fuelling suspicions over its legitimacy.
In a press release announcing the enforcement action, North Dakota Securities Commissioner Karen Tyler said that because ICOs are largely sold online, there is a high risk of fraud for investors.
“Because ICOs are sold over the internet and pitched heavily through social media platforms, North Dakotans can be exposed to the offers whether the promoter is down the street or on the other side of the globe,” Tyler said. “Financial criminals continue to cash in on the hype and excitement around blockchain, crypto assets, and ICOs – investors should be exceedingly cautious when considering a related investment.”
While there is some suggestion the Union Bank Payment Coin may be an explicit attempt to fraudulently solicit investments, many other ICOs backed by legitimate companies contravene securities laws—most commonly related to the offer and sale of unregistered securities by unregistered parties.
With an increasing number of ICOs being found to be securities, and therefore falling within the scope of existing securities regulation, it has become increasingly difficult for ICO promoters to operate in the unregulated sphere.
Note: Tokens on the Bitcoin Core (segwit) Chain are Referred to as BTC coins. Bitcoin Cash (BCH) is today the only Bitcoin implementation that follows Satoshi Nakamoto’s original whitepaper for Peer to Peer Electronic Cash. Bitcoin BCH is the only major public blockchain that maintains the original vision for Bitcoin as fast, frictionless, electronic cash.
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The North Dakota (ND) Securities Department issued cease-and-desist orders against three groups launching initial coin offerings (ICOs) in the state, including the infamous BitConnect, according to a press release.
The regulatory action is part of the continent-wide Operation Cryptosweep, that seeks to shut down cryptocurrency-related scams. “The expanding exploitation of the cryptocurrency ecosystem by financial criminals is a significant threat to Main Street investors,” ND Commissioner Karen Tyler said, adding that “financial criminals are cashing in on the hype and excitement around blockchain, crypto assets, and ICOs – investors should be exceedingly cautious when considering a related investment.”
According to the North Dakota regulator, the most common securities violations for ICOs were failure to register tokens and coins offered to the public, failure to register as a sales agent, and outright fraud.
BitConnect and related companies BitConnect LTD and BitConnect International PLC have also been served cease-and-desist orders in other states, namely Colorado, North Carolina and Texas. “BitConnect is not registered in North Dakota to offer securities and BitConnect’s claim of excessive interest rates is unsubstantiated and misleading,” the regulator said, in reference to the 120% returns promised to investors.
Magma, along with Magma Foundation and Magma Coin, which is selling a token named ‘MGM’ is supposedly “backed by gold and/or ETFs,” and was said to have false information on their website, “including images of people represented to be the Magma Foundation executive team, which in fact are not related to Magma and are assigned fake names.”
The third group, Pension Rewards Platform, was criticized by the agency for not disclosing “material financial and risk information to potential investors, nor do they describe the means by which they will provide the promised return on investments.”
The ND Securities Department said that a “red flag” of fraudulent ICOs was “plagiarized white papers containing spelling and translation errors, fictitious executive teams represented by stock internet photos, fake business addresses and phone numbers, fake celebrity endorsements, the promise of no risk and high returns, false claims about securities law compliance, and the promise of additional ICO tokens for promoting the deal and bringing in other investors.”
BitConnect shut down its exchange last January, the price of its cryptocurrency falling from a peak of over $400 a coin to a few cents today, in the few exchanges still trading it. The firm’s assets in the US have been frozen, and its executives are being hunted by the authorities. Divyesh Darji, who reportedly headed BitConnect India, was arrested in August.
Note: Tokens on the Bitcoin Core (segwit) Chain are Referred to as BTC coins. Bitcoin Cash (BCH) is today the only Bitcoin implementation that follows Satoshi Nakamoto’s original whitepaper for Peer to Peer Electronic Cash. Bitcoin BCH is the only major public blockchain that maintains the original vision for Bitcoin as fast, frictionless, electronic cash.
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