The Securities and Exchange Commission is stepping up its long-overdue crackdown on shady initial coin offerings that are churning out suckers at a record clip with one simple promise: Invest in our coin and you, too, can receive an astronomical IRR just like your savvy cousin who bought a handful of bitcoins back in 2011 and decided to hold on for dear life.
In an enforcement action that, as far as we can tell, is the first of its kind anywhere, the SEC just won an emergency asset freeze to stop an initial coin offering that the agency said has defrauded investors by promising a 13-fold profit in less than a month.
While such an outrageous guarantee should immediately set alarm bells ringing in the minds of any experienced investor, bitcoin’s 1,000%-plus return so far this year has inspired many lazy would-be crypto millionaires to throw caution to the wind and approach every new ICO with a level of credulity that’s totally unjustified. But anybody who actually reads the “white papers” that many of these companies release will realize that they typically comprise hypertechnical gibberish designed to convince investors that there is no problem in the world today that can’t be solved with a blockchain and thousands of monetized tokens.
According to Bloomberg, the asset freeze was granted after the SEC sued Dominic Lacroix and his company PlexCorps in federal court in Brooklyn. The firm and Lacroix, described by the SEC as a recidivist securities-law violator (a status that’s not uncommon among so-called “entrepreneurs” in the massively fraudulent world of ICOs), have raised $15 million since August marketing and selling a product called PlexCoin.
The case is the first brought by a new SEC unit created in September to focus specifically on ICOs.
“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,” said Robert Cohen, head of the SEC’s Cyber Unit.
“We acted quickly to protect retail investors from this initial coin offering’s false promises."
According to the SEC, Lacroix and PlexCorps violated securities laws by failing to register the offering and not disclosing Lacroix’s involvement with probes by Canadian authorities, the SEC said. The agency also sued and froze the assets of Sabrina Paradis-Royer, described as Lacroix’s romantic partner. The suit seeks fines and disgorgement from Lacroix and Paradis-Royer, as well as a ban on their participation in offerings of digital securities.
The SEC fired its warning shot in July when its ruling on an investigation into the collapse of the DAO - a sort of proto-ICO that went bust after hackers stole $50 million worth of ethereum tokens (of course, the total value of the tokens stolen has massively inflated in the interveneing period) - officially declared ICOs to be securities that must be registered with the SEC. In August, the regulator warned investors to exercise extreme caution before investing in ICOs, warning that many are classic pump-and-dump schemes obscured by a new techno-veneer.
Even the most successful ICOs are on the verge of collapse. The 800 or so ICOs that have launched this year have raised nearly $4 billion. Yet the market has been astonishingly devoid of success stories.
Yesterday, we reported how frustrated investors in Tezos, which raised more than $230 million in an ICO over the summer, have filed a spate of class action lawsuits against the company alleging that its founders intentionally defrauded investors. The company, which had little more than a white paper to its name when it completed its offering, has yet to produce the digital tokens it promised investors.
Meanwhile, the ethereum and bitcoin that it accepted as payment during its crowdsale have appreciated massively in the intervening months.
But for those investors who still insist on invest in the ICO market - where founders fool investors with nonsensical business plans that they pass off as “too complicated” for the average layperson to grasp - one 16-year-old math whiz has created a product that will reportedly allow investors to invest in a “tranche” covering the entire ICO market.
As the press release explains, the answer is simple:
In a nutshell: We’re going to take a position in each ICO, then wrap those up into their own ICO and then you can buy tranches of that ICO depending on your “risk tolerance” i.e. how strong a person you are.
Basically, it’s all a question of how RICH YOU WANT TO BECOME. The bottom tranche is so safe that you can basically put your entire life savings in and earn a fat return.
The notion that diversification can help investors avoid losses in a massively fraudulent market is, of course, a canard. At the end of the day, it'll be the investors - not the offering's organizer - left holding the bag once the entire market goes to zero.