Last month, Securities Commissioner Travis J. Iles warned that scams involving cryptocurrencies and digital assets present a top threat to retail investors in 2022. Today, Commissioner Iles brought an action to stop this type of scam—a fraudulent cryptocurrency mining investment scheme targeting Texans.
Commissioner Iles entered an emergency cease and desist order against Wireless Management, LLC, and its principal, William S. Rogers. It accuses the parties of promoting investments tied to a technology leveraging a decentralized network of global hotspots that permits cryptocurrency mining while providing wireless access for others.
“The cryptocurrency and digital asset industry is developing new, exciting technologies,” said Commissioner Iles. “As interest grows, bad actors take notice. They use the hype and play on FOMO—fear of missing out—to promote lucrative investments that may actually be very risky and can result in a total loss of principal. These schemers harm not only our retail investors but also frustrate innovation by legitimate industry participants.”
Although Wireless Management and Rogers are located in Florida, they are accused of publishing online advertisements that encourage Texans to purchase their investments. The advertisements allegedly tout a turnkey package in hardware that “mines crypto currency [sic] and makes… great income every month.” The advertisements also claim the turnkey package generates passive monthly income for five years.
According to the order, the turnkey package is based on Helium. Helium refers to a blockchain network and a token that trades under the symbol HNT. Users earn HNT by installing and maintaining hotspots—devices that are a combination of a miner and a gateway that helps provide wireless coverage for connected devices over a certain radius. As these hotspots solve proof-of-coverage tests, owners are rewarded with HNT.
HNT has a current circulating supply of more than 108 million HNT and a current market capitalization of approximately $3.2 billion. According to the order, the price of HNT is volatile—HNT was priced at around $1.30 per token on January 1, 2021, peaked at around $52.99 on November 15, 2021, and is priced at around $29.00 as of January 19, 2022.
The order does not accuse Helium Systems, Inc., the developer of HNT, or any employee of the company of dealing in securities in Texas or violating state securities laws. The order only names Wireless Management and Rogers and accuses them of illegally and fraudulently issuing investments independent of Helium Systems, Inc.
Wireless Management and Rogers are allegedly telling potential investors they have secured hotspots and “top tier locations” for mining HNT. In return for an initial capital investment, Wireless Management and Rogers are allegedly telling investors they will receive passive income in the form of HNT mined by a hotspot placed at one of these locations. The HNT earned through mining will reportedly be evenly split—investors receive half of the rewards and Wireless Management receives half of the rewards.
“Promoters of fraudulent investments often focus on the purported profitability of products derived from digital assets,” said Enforcement Director Joe Rotunda. “In many cases, however, investors never earn these profits—and new investors are not told that prior investors may have incurred significant losses after purchasing other investments from the same parties.”
In this case, the order alleges Rogers is concealing prior accusations of misconduct. According to the order, a prior investor filed a civil action against Rogers, claiming he purchased an investment from Rogers after responding to an advertisement on craigslist.org. The investor also claimed Rogers guaranteed the payment of a fixed rate of return, but Rogers never returned his principal or paid the guaranteed profits. The court ultimately entered a default judgment against Rogers for $36,000.00 in damages and more than $3,500.00 in attorney’s fees.
According to the order, when the Enforcement Division began investigating Wireless Management and Rogers, the Enforcement Division afforded Wireless Management and Rogers the opportunity to become compliant with the law. Although they promised to become compliant, Wireless Management and Rogers nevertheless continued to illegally and fraudulently offer securities in Texas. Commissioner Iles entered the order after determining their conduct now threatens immediate and irreparable public harm.
Wireless Management and Rogers are not registered to sell securities in Texas, Wireless Management has not registered the turnkey investment with the Securities Board, and the agency has not permitted the investments for sale in Texas. In addition to violating state registration laws, the order accuses Wireless Management and Rogers of concealing material risks associated with the turnkey investment and deceiving investors about their technical knowledge.
CONTACT: Joe Rotunda, Director of Enforcement, Texas State Securities Board, by electronic mail at firstname.lastname@example.org.