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Texas Regulator Hit Two Bitcoin Investment Schemes with Cease-and-Desists

Last Updated March 4, 2021 5:07 PM
Gerelyn Terzo
Last Updated March 4, 2021 5:07 PM

The Texas State Securities Board has uncovered more suspicious activity from cryptocurrency businesses targeting residents in the state.

The agency has most recently issued a pair of emergency orders against two separate entities that according to the regulators were scamming investors, including a bitcoin mining operation and a bitcoin foreign exchange investment fund. Both startups — Bitcoin Trading & Cloud Mining Ltd. (BTCRUSH) and Forex EA & Bitcoin Investment LLC — were promising outsized returns, among other alarming behaviors, and were issued cease and desist orders, bringing the tally of such requests issued by the Texas State Securities Board to nine.

Joseph Rotunda, Director of the Enforcement Division at the Texas State Securities Board, told CCN.com that the latest emergency orders were part of a sweep that the agency launched at year-end 2017 when the bitcoin price was trading in the stratosphere. The sweep targets projects that raise red flags and that are promoting to Texas residents. The number of open investigations into cryptocurrency startups including ICOs has doubled since that time, from about 30 to approximately 60.

“We’ve seen this before when a new market emerges and people want to get rich quick at the expense of others. They infiltrate the market we are trying to weed out those folks. Their schemes are very fragile, like a house of cards waiting to tumble. Something comes along to offers that gust of wind and everything collapses,” Rotunda told CCN.com.

In Texas, that gust of wind is increasingly taking the form of emergency cease-and-desist orders.

Unrealistic Returns

The two blockchain startups are accused of violating the Texas Securities Act for a lack of transparency in their management structure and investment philosophy in addition to not making plain the risks associated with cryptocurrency investing, not to mention attempting to lure investors with the promise of unrealistic returns.

BTCRUSH is a UK-based cloud-fueled bitcoin and altcoin mining startup. It created a video that was supposedly comprised of the interiors and exteriors of a trio of mining facilities, Rotunda explained. The Texas securities agency was able to quickly decipher that the video was actually stock footage from the internet that was spliced. That led the regulators to realize that the company was not in compliance and to issue the emergency order.

Rotunda told CCN.com:

“They weren’t just putting out a website and letting investors come to them. They weren’t just discussing investments on a message board. Their sales agents were specifically advertising and sending materials to Texas residents. They were communicating, ‘come to our website, register an account, purchase an investment.”

According to the cease and desist order, BTCRUSH, which only became operational in March, says it’s been distributing “4.1% daily interest on a lifetime contract and they offer a “100% satisfaction guarantee” along with the freedom to change the interest terms at will.

Bitcoin price
The investment schemes offered heightened, unrealistic returns.

New York-based Forex EA & Bitcoin Investment may not be based in the Lone Star State, but it was marketing its business to Texas residents. They allegedly used a Houston area code attached to their phone number even though the company isn’t physically located in the region, which would deceive unsuspecting residents.

According to the emergency order, My Forex Bitcoin Investment claims to run a $500,000 fund that’s “climbing”. The startup is allegedly guaranteeing that a $5,000 investment will generate returns of $50,000 in about three weeks and any losses will be offset by the growing portfolio. But they fail to disclose their investment strategy to deliver these outsized returns and made no mention of any investment risks associated with investing in digital currencies, the emergency order alleges.

Texas Prison

Non-compliance with the cease and desist orders could result in up to a decade in a Texas prison.

“What I found in my experience is once we enter these emergency actions, it shakes things up. Companies collapse sometimes. Once word reaches the public, that’s when the complaints come pouring in,” Rotunda said.

Cryptocurrency-related investigations are taking more of the agency’s time of late, but not every situation ends with an emergency order. In some cases, the Texas securities regulator is able to communicate with the entrepreneur behind a blockchain-based startup and explain that they’re not doing things in accordance with securities law, after which time many individuals cooperate.

As for the Texas Securities Board, Rotunda said they remain objective about the market.

“We want to foster business. And my concern is people will be turned off to cryptocurrencies when there’s so much fraud out there. If we can get the bad actors out, the legitimate businesses can prosper,” he said.

Images from Shutterstock.