the staff of the Ridgewood blog
NEWARK NJ, Attorney General Gurbir S. Grewal and the Division of Consumer Affairs announced that the Bureau of Securities (“the Bureau”) today issued three emergency orders to stop online cryptocurrency-related investment entities from fraudulently offering unregistered securities in New Jersey.
The Cease and Desist Orders against Bullcoin Foundation a/k/a Bullcoin Gold (“Bullcoin”,) Trident d/b/a Trident Crypto Index Fund (“Trident”,) and Springcryptoinvest were announced today as part of “Operation Cryptosweep,” an international crackdown on fraudulent Initial Coin Offerings (“ICOs”) and crypto currency-related investment products.
More than 40 other state and provincial securities regulators in the United States and Canada are participating in the sweep, which is being coordinated by the North American Securities Administrators Association (NASAA), of which the Bureau is a member.
“New Jersey’s Bureau of Securities has been a national leader in proactively protecting investors against the significant threat of fraudulent activity involving initial coin offerings and cryptocurrency-related investment products,” said Attorney General Grewal. “Today the Bureau joins securities regulators across the nation and beyond in sending a message that we will vigilantly safeguard our financial industry from schemes and scams involving cryptocurrencies.”
Operation Cryptosweep has resulted in nearly 70 investigations and 35 completed or pending enforcement actions since the beginning of May. NASAA members are conducting additional investigations into potentially fraudulent conduct that may result in additional enforcement actions. These actions are in addition to more than a dozen enforcement actions previously undertaken by NASAA members regarding these types of products.
“New Jersey is proud to announce enforcement actions under Operation Cryptosweep to help raise public awareness of the risks associated with initial coin offerings and cryptocurrency-related investment products,” said Kevin Jespersen, Acting Director of the Division of Consumer Affairs. “The Cease and Desist Orders we issued today successfully shut down three online entities seeking to prey on New Jersey investors.”
The Bureau found that Bullcoin is offering investors an unregistered security in the form of an ICO of its Bullcoin Gold cryptocurrency (the “BCG token”) through its website and through various social media websites. The Bullcoin securities were not registered with the Bureau to be sold in New Jersey. Bullcoin further violated the law by failing to disclose key material facts to prospective investors, including its assets and liabilities, or financial information about the business; the risks associated with the BCG tokens; and the cryptocurrencies that the Bullcoin fund would invest. The Bureau also found that Bullcoin made untrue statements of material facts on its website, including that it is “the leading crypto-hedge fund,” an assertion that is either untrue or unsupported.
The Bureau found that Trident is offering investors an unregistered security in the form of an ICO of its Trident coins (“TDC Coin”) through its website and through various social media websites. The TDC Coins were not registered with the Bureau to be sold in New Jersey. Trident further violated the law by failing to disclose key material facts to prospective investors, including the identity of its principals; its physical address and principal place of business; its assets and liabilities, or financial information about the business; the persons or entities that developed the TDC coins; and the persons or entities that are buying and selling the cryptocurrency in the Trident Crypto Index Fund. The Bureau also found that Trident made untrue statements of material facts, including a statement on its website that in 2017 the Trident Crypto Index Fund had a return of more than 1400 percent but there is no evidence provided of these returns; and a statement on its WhitePaper that since the beginning of 2016 TDC coin has “gained by a factor of 154” but the Trident Website indicates that Trident was not founded until 2017.
The Bureau found that Springcryptoinvest is offering investors an unregistered security in the form of various investment packages through its website and through various social media websites. In order to invest with Springcryptoinvest, investors must open an online account through its website. After opening an account, investors are urged to fund the account by purchasing a plan using the cryptocurrencies Bitcoin, Litcoin, or payment websites PerfectMoney or Payeer. The Springcryptoinvest investment packages were not registered with the Bureau to be sold in New Jersey. Springcryptoinvest further violated the law by failing to disclose key material facts to prospective investors, including the identity of its principals; Springcryptoinvest’s assets and liabilities, and other financial information; and how investor funds are invested. The Bureau also found that Springcryptoinvest made untrue statements of material facts on its website by claiming it was incorporated in the United Kingdom in November 2002 with 04588340 as its registration number. However, United Kingdom registration number 04588340 is not assigned to Springcryptoinvest, and there is no United Kingdom registration number for the name Springcryptoinvest.
“Not every initial coin offering or cryptocurrency-related investment is fraudulent, but the risk of fraud is significant,” said Christopher W. Gerold, Chief of the New Jersey Bureau of Securities and Chair of NASAA’s Enforcement Section. “Since cryptocurrencies began attracting headlines last year, we have been warning investors to approach crypto-related investments with extreme caution and stay away from any investment that requires them to transmit funds to an unidentified online entity that fails to disclose who is behind its investment products, the financial status of its business, and the physical location of its operations.”
In April 2018, NASAA organized a task force of its member state and provincial securities regulators to begin a coordinated series of investigations into ICOs and cryptocurrency-related investment products. Regulators identified many cryptocurrency-related products and as part of its work, the task force identified hundreds of ICOs in the final stages of preparation before being launched to the public. These pending ICOs were advertised and listed on ICO aggregation sites to attract investor interest. Many have been examined and some were determined to warrant further investigation. A number of these investigations are ongoing and others resulted in enforcement actions announced today.
NASAA’s task force also found approximately 30,000 crypto-related domain name registrations, the vast majority of which appeared in 2017 and 2018.