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Financial Services Law Insights and Observations

SEC charges cryptocurrency lending platform involved in $2 billion scheme

Securities Digital Assets SEC Enforcement Cryptocurrency Fintech Fraud Consumer Finance DOJ


On September 1, the SEC filed a complaint against an online cryptocurrency lending platform, its founder, and an additional executive and his affiliated company (collectively, “defendants”) alleging they fraudulently raised approximately $2 billion from retail investors through a global unregistered offering of investments involving digital assets. According to the SEC, the defendants sold securities in the form of investments tied to the company’s lending program, and falsely promised investors that its purported proprietary “volatility software trading bot” could generate monthly returns as high as 40 percent. However, the SEC alleged that instead of trading investor funds, the defendants used the funds for their own benefit, such as transferring funds to a digital wallet controlled by their top U.S. promoter (one of the defendants here). To hide the fact that they were not trading the funds as promised, the SEC claimed the defendants “conducted a Ponzi-like scheme in which they at times used funds deposited by newer investors in order to satisfy withdrawal demands made by earlier investors.” The SEC charged the defendants with violating antifraud and registration provisions of the federal securities laws, and is seeking injunctive relief, disgorgement plus prejudgment interest, and civil penalties. In a parallel action, the DOJ announced the same day that the top U.S. promoter pleaded guilty to criminal charges for his role in the cryptocurrency scheme.

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