A state task force formed to investigate cryptocurrency-related investments has netted its first enforcement action.
North Dakota Securities Commissioner Karen Tyler issued cease-and-desist orders against BitConnect and related companies, BitConnect LTD and BitConnect International PLC, Magma Foundation and related companies, Magma Coin and Magma, and Pension Rewards Platform for being unregistered with the state and potentially fraudulent securities.
The three companies are Initial Coin Offerings. An ICO is a financing method used by start-up companies to raise capital by selling investors their own virtual cryptocurrency.
Tyler convened the three-person ICO Task Force in August to identify allegedly fraudulent ICOs that pose a risk to North Dakota investors. The effort is part of Operation Cryptosweep, a multijurisdiction investigation and enforcement effort involving more than 40 U.S. and Canadian securities regulators.
“I think you can expect to see a regular cadence on this,” Tyler said of enforcement action against ICOs.
The department has open and ongoing investigations into seven other companies and will continue to open more as previous ones are closed.
In the case of the three companies that received cease-and-desist orders, Tyler’s department is alleging the companies are making fraudulent representations about the potential for return on investment.
BitConnect’s website claims that holders of its BCC can receive interest rates of up to 120 percent. BitConnect, BitConnect LTD and BitConnect International PLC were previously served orders by several states, including Colorado, North Carolina and Texas, alleging unregistered activity and fraud.
Magma Foundation is the subject of a cease-and-desist order issued by the Colorado Securities Division. Its website contains allegedly fraudulent content, including fake images and names of people represented to be the Magma Foundation executive team.
Pension Rewards Platform is offering “$Pcoin” or “Pcoin” to fund its platform to connect freelancers to available workforce opportunities. According to the Securities Department, the company fails to disclose material financial and risk information to potential investors, nor does it describe the means by which they will provide the promised return on investments.
“The expanding exploitation of the cryptocurrency ecosystem by financial criminals is a significant threat to Main Street investors,” Tyler said in a statement. “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.”
Globally, ICOs raised $5 billion last year and are on course to raise $6 billion this year, Tyler said.