AUSTIN, TX — State regulators have issued an emergency cease-and-desist order seeking to prevent an overseas firm from selling crytocurrency in Texas.
The Texas Securities Commission entered the order aimed at halting multiple investment programs operated by BitConnect, an England-based firm that claims a market share of $4.1 billion for its cryptocurrency coins.
Regulators say BitConnect is soliciting investors for its programs officials claim will deliver annualized returns of 100 percent or more, according to the Jan. 4 order issued by Securities Commissioner Travis J. Iles.
BitConnect issues its own currency dubbed BitConnect Coins. Company officials claim they have placed 9.4 million of the coins into the online cryptocurrency marketplace, representing a market value of $4.1 billion as of Jan. 3, according to regulators. Company officials have disclosed plans to issue a maximum of 28 million coins.
The company requires individuals to use Bitcoin, a more established crytocurrency, to invest in various BitConnect programs. In one investment called the BitConnect Lending Program, investors buy BitConnect Coins, which are then provided to a “BitConnect Trading Bot” to generate promised returns as high as 40 percent per month.
But state regulators found BitConnect investments res securities not registered as required by the Texas Securities Act and State Securities Board rules and regulations. Moreover, the company is not registered to sell securities in Texas, regulators said. BitConnect have the option to contest state regulators’ order in administrative hearings, officials said.
The Texas State Securities Board boasts of having been the first state body to issue an administrative order on cryptocurrency investments. On Dec. 20, the securities commissioner entered an emergency cease-and-desist order against USI-Tech Limited, a Dubai-based firm.
In terms of BitConnect, state regulators say its officials have disclosed little about their operations — including who its principals are, details on its balance sheet, the strategy for earning profits for investors or details on the algorithm behind its trading bot. The company hasn’t evn provided a physical address in England, regulators added.
Despite the dearth of such key information, company officials tout their investments as a “…safe way to earn a high rate of return,” state officials noted. Yet the cryptocurrency landscape is innately high-risk given regulatory and legal actions, competition from other cryptocurrency peddlers and the volatility of its currency.
The company operates websites and utilizes online advertising to recruit sales agents dubbed “affiliates,” regulators said. The company provides marketing material to such affiliates, including online presentations, and pays them commissions for referrals that result in investments in BitConnect programs.
Regulators said BitConnect sales agents are targeting Texas residents and those of other states through websites, social media, and online marketplaces such as Ccraigslist. But these sales agents are not registered as agents of BitConnect to sell securities in Texas, regulators said.
The Securities Commissioner’s action follows BitConnect’s recent announcement for an Initial Coin Offering (ICO) in the U.S. on Tuesday, Jan. 9. Companies use such coin offerings, also called token sales, to raise capital. Under an ICO, investors buy virtual tokens from a company, which then uses the proceeds for business development.
BitConnect has not said how it will use the proceeds from its upcoming ICO, state regulators said.
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