SEC CRYPTO NEWS: Texas token issuers agree to pay $8.4 million after defrauding investors

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The U.S. Securities and Exchange Commission (SEC) announced that it has settled charges with the founders of an unregistered cryptocurrency exchange in Dallas.

Bruce Bise and Sam Mendez are the founders of Bitqyck Inc., which the SEC contends defrauded investors when it sold unregistered securities and operated an unregistered digital asset exchange.

The SEC’s complaint notes that the company created and sold two digital assets, Bitqy and BitqyM, to over 13,000 investors, raising over US$13 million [AU$19.3 million] in revenue.

The company lured investors into referring additional people into the scheme by offering financial incentives, and Bitqyck Inc. paid out $4.5 million for such referrals.

The two men told investors that each Bitqy token represented a fractional share of Bitqyck stock, as well as telling investors that BitqyM tokens represented a share in a cryptocurrency mining facility owned by the company that was the recipient of below-market prices for electricity.

Bitqyck did not have access to cheap power nor did it have a crypto mining facility.

However, the SEC states that no such cryptocurrency mining facility existed and the company also had no actual access to cheaper power.

In addition, Bise and Mendez told investors that QyckDeals, their daily deals platform that used the Bitqy token, was a global online marketplace when, in reality, it was not.

The SEC also charged the duo with operating an unregistered national security exchanged called TradeBQ, which only traded the Bitqy token.

Overall, investors lost over two-thirds of their investment in Bitqyck.

The SEC sought several penalties for the two men in their complaint: a return of the investors’ money with interest, permanent injunctions, and civil penalties.

Bise and Mendez, along with the company they founded, agreed to the final judgments sought in the SEC’s complaint, although as part of the agreement they have neither admitted to nor denied the charges.

The two founders will pay disgorgement, prejudgment interest, and a civil penalty. Bise will pay a penalty of $890,254 while Mendez will pay a penalty of $850,022.

Courtroom

The company the duo founded, Bitqyck, will pay disgorgement, prejudgment interest, and a civil penalty of $8,375,617.

“Because digital investment assets represent a new and exciting technology, they can be very alluring, especially if investors believe they are getting in on the ground floor and will own part of the operations,” said David Peavler, Director of the SEC’s Fort Worth Regional Office.

“We allege that the defendants took advantage of investors’ appetite for these investments and fraudulently raised millions of dollars by lying about their business.”

SEC keeping busy

The SEC has been cracking down on cryptocurrency companies that don’t follow the law.

Earlier this month, the SEC filed suit to freeze over $8 million in assets remaining from an unregistered token ICO and charged the token’s creator, Reginald Middleton, with fraud.

SEC

The SEC sued Kik Interactive Inc. back in June, saying that the company’s $100 million ICO held in 2017 was illegal due to the company not registering with the federal agency.

In May, the Securities and Exchange Commission filed suit against a man, Daniel Pacheco, who was allegedly running a cryptocurrency pyramid scheme that defrauded investors of $26.5 million.

The federal watchdog also recently settled their lawsuit against PlexCorps, the creator of the PlexCoin.

PlexCorps paid a fine of $4.56 million with another $350,000 in interest while the company’s two founders, Dominic Lacroix and Sabrina Paradis-Royer, each paid $1 million while also agreeing to never engage in offering securities again.

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