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A putative class action against a once-leading cryptocurrency lending and exchange platform is targeting several social media users that were paid to promote the business’s services.
Six cryptocurrency investors alleged that U.K-based BitConnect, which closed operations earlier this month, sold unregistered, fraudulent securities when it offered virtual currency and lending services to the public. The nine defendants in the case include BitConnect, one company director, and five individuals who received commissions from the company to sell and promote its virtual currency and services on social media sites such as Facebook Inc. and Alphabet Inc.'s YouTube, according to the Jan. 24 complaint.
The lawsuit, filed in the U.S. District Court for the Southern District of Florida, is likely the first case against a cryptocurrency company to seek damages from social media promoters, David C. Silver, counsel for the plaintiffs and an attorney at Silver Miller, told Bloomberg Law Jan. 25.
Federal regulators are tracking the use of social media to promote virtual currencies that are sold as securities. In November, the U.S. Securities and Exchange Commission issued a warning about celebrity endorsements of initial coin offerings (ICOs), which function similarly to a crowdfunding sale or initial public offering. The commission said celebrities or individuals that promote or sell a virtual currency that is a security must comply with federal securities laws.
BitConnect allegedly guaranteed investors in its ICO returns of up to 40 percent per month, according to the complaint. The cryptocurrency platform closed earlier this month in the wake of cease-and-desist orders from state securities regulators in Texas and North Carolina, a move that caused a 90 percent drop in BitConnect Coin value, according to the complaint.
A spokesperson from BitConnect didn’t immediately respond to a request for comment.
The plaintiffs are seeking the return of the money they and other class members invested with BitConnect. They’re also seeking compensatory, punitive, incidental, and consequential damages, according to the complaint.
The case is Wildes v. BitConnect Int’l PLC , S.D. Fla., No. 9:18-80086, complaint 1/24/18 .
—With assistance from Jennifer Bennett
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