Back in July, the US Securities and Exchange Commission became the first governmental body to crack down on the popular method of crowdfunding that rose to pre-eminence this year. With the intent of protecting investors and providing a safe and regulated environment to conduct investment, the SEC announced that ICOs could be deemed as securities and treated as such, with all the relevant regulation and checks that applied. Prior to this, concerns had been raised around Initial Coin Offerings but no official positions had been taken. Any legal action taken against scams had been pursued by the individuals involved.
In the wake of this announcement, many other countries around the world began announcing their own decisions on ICOs, with different outcomes for the blockchain-based method depending on the stance the country took. Some, such as Switzerland, revealed that they were monitoring and acting on specific cases where potential illicit activity was suspected.
Now, the SEC has revealed that it has obtained an emergency asset freeze to stop a rapidly moving ICO fraud that raised up to $15 million from thousands of investors since August by falsely claiming to offer a 13-fold profit in less than a month.
The SEC filed charges against a recidivist Quebec securities law violator, Dominic Lacroix, and his company, PlexCorps. The Commission’s complaint, filed in federal court in Brooklyn, New York, alleges that Lacroix and PlexCorps marketed and sold securities called PlexCoin on the internet to investors in the U.S. and elsewhere, claiming that investments in PlexCoin would yield a 1,354 percent profit in less than 29 days. The SEC also charged Lacroix’s partner, Sabrina Paradis-Royer, in connection with the scheme.
This marks the first charges filed by the SEC’s new Cyber Unit since its inception in September, made to focus the Enforcement Division’s cyber-related expertise on misconduct involving distributed ledger technology and ICOs, the spread of false information through electronic and social media, hacking and threats to trading platforms.
Robert Cohen, Chief of the Cyber Unit, commented: “This first Cyber Unit case hits all of the characteristics of a full-fledged cyber scam and is exactly the kind of misconduct the unit will be pursuing. We acted quickly to protect retail investors from this initial coin offering’s false promises.”
The SEC’s complaint charges Lacroix, Paradis-Royer and PlexCorps with violating the anti-fraud provisions, and Lacroix and PlexCorps with violating the registration provision, of the U.S. federal securities laws. The complaint seeks permanent injunctions, disgorgement plus interest and penalties. For Lacroix, the SEC also seeks an officer-and-director bar and a bar from offering digital securities against Lacroix and Paradis-Royer.
The Commission’s investigation was conducted by Daphna A. Waxman, David H. Tutor, and Jorge G. Tenreiro of the New York Regional Office and the Cyber Unit, with assistance from the agency’s Office of International Affairs. The case is being supervised by Valerie A. Szczepanik and Mr. Cohen. The Commission appreciates the assistance of Quebec’s Autorité Des Marchés Financiers.