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Financial Services Law Insights and Observations

SEC obtains TRO and asset freeze against investment scam

Securities SEC Enforcement Cryptocurrency

Securities

On July 19, the SEC announced that it had obtained a temporary restraining order and asset freeze to halt an ongoing fraud offering by a Las Vegas-based company and two individual defendants, including a recidivist, (collectively, “defendants”) that allegedly raised more than $12 million from nearly 300 retail investors. According to the complaint, the defendants violated several provisions of securities laws by allegedly promising investors that their money would be invested in securities, bitcoin, and other cryptocurrencies based on recommendations made by an “[a]rtificial intelligence supercomputer,” which allegedly “consistently generate[d] enormous returns” and allowed the defendants to guarantee fixed returns of 20-30 percent annually with compounding interest. However, the SEC alleged that over 90 percent of the defendants’ funds came from investors, and that the defendants did not use these funds for the stated purposes. Rather, defendants transferred millions of dollars to one of the individual defendant’s personal bank accounts, paid millions of dollars to promoters who led investors to the defendants, and made “Ponzi-like” payments to other investors. The complaint seeks permanent injunctions, disgorgement, prejudgment interest, and civil penalties.

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