By Lydia Beyoud
Texas’s top securities watchdog is halting unregistered cryptocurrency trading operation LeadInvest, which allegedly targeted cryptocurrency newbies through a number of schemes.
LeadInvest allegedly touted having an all-star management team, implying its members included U.S. Supreme Court Justice Ruth Bader Ginsburg, former U.S. solicitors general, practicing attorneys with no relation to the company, and even a photostock model identified as a blockchain advisor, according to an emergency cease-and-desist order filed Feb. 26.
The action is the fifth such order brought by the Texas State Securities Board since December. Texas is one of the most active states in pursuing allegedly fraudulent cryptocurrency operations. LeadInvest failed to register its securities products and services with the state, in addition to making other allegedly deceptive statements and claims, according to the order.
The enforcement division alleged the company intentionally sought to mislead the public by promoting high-return investment opportunities, including a program to receive interest payments in return for lending fiat currency to LeadInvest. “If you have some Bitcoins, you may want to see them work for you instead of lying around in a wallet. That is where Bitcoin lending services come in,” LeadInvest said on its website.
The company is also currently advertising through a number of local Craigslist sites with ads proclaiming: “Relax and earn interest on the crypto market.” LeadInvest claims 190,334 registered accounts with approximately $177 million deposited with the system.
The company may have sought to capitalize on media coverage of the energy-intensive costs of cryptocurrency mining. For the environmentally-conscious crypto investor, LeadInvest promoted a “green” Bitcoin mining farm based in Iceland, the first of which launched in June 2015, accord to its site.
“Now we have our own dual source energy generators in the form of geothermal and hydroelectric energy helping us to have a steadily expanding mining farm,” LeadInvest said. The Texas regulator said the company intentionally failed to disclose any material facts about its mining rigs, such as their energy costs.
The public should take steps to verify the qualifications of businesses selling securities and the identity of their sales agents, Joseph Rotunda, director of enforcement for the Texas State Securities Board, told Bloomberg Law.
It may be time for investors to embrace a version of the “know your customer” standard commonly used by financial institutions to verify client identities, Rotunda said. “As more and more firms continue to embrace e-commerce, we believe investors should apply this important concept to their dealings with securities brokers, making sure they ‘know their firm’” or financial professional, Rotunda said in an e-mail.
The company also allegedly promised investors it would comply with “all relevant laws and regulations” and that the fund directors were regulated by the Cayman Islands. Texas alleged LeadInvest intentionally failed to disclose the identities of its real principals while burnishing its bona fides through association with attorneys and judges.
Justice Bader Ginsburg, for example, was implied to be part of the “CodeOfEthics [sic] Association” pictured on LeadInvest’s site. The group is described as advising the company on matters of contract law, due diligence and corporate law. The photograph is from a 2005 event at George Washington School of Law. The group includes four former U.S. solicitors general or deputy solicitors general, though no individual in the photo is named on the site.
LeadInvest didn’t immediately respond to a request for comment. The company appears to be registered in Panama under a concealed registration.
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