Two Cryptocurrency Firms Hit With Emergency Orders

May 8

Texas Securities Commissioner Travis J. Iles on May 8 entered two emergency actions against unregistered promoters who are fraudulently offering high-return investments in programs tied to cryptocurrencies.

According to the orders, Bitcoin Trading & Cloud Mining Ltd. also known as BTCRUSH, and Forex EA & Bitcoin Investment LLC are violating the Texas Securities Act by failing to disclose any material information about their principals, strategies, finances, and the extensive technical and regulatory risks of cryptocurrency-related offerings.

The orders bring to nine the number of actions the Securities Commissioner has taken against illegal or fraudulent cryptocurrency promoters since Dec. 20, 2017.

BTCRUSH, whose principals list an address in London, is soliciting Texas investors with the promise of huge returns from the mining of cryptocurrencies at three massive computing centers featured in videos on the company's website. 

The videos are not evidence of anything, however. According to the order, BTCRUSH created the videos by manipulating stock footage available for sale on the internet.

BTCRUSH doesn’t disclose the locations of the sites but describes one as “a secluded place in the mountains hiding incredible computing power.” Another site is purportedly located in a bombproof shelter from “the Second World War times.”

BTCRUSH describes itself as a cloud-based cryptocurrency mining company that mines both Bitcoin and other virtual currencies, known as alt-coins. The company is offering investments in a program it says will sell newly created alt-coins to buy bitcoins, an established currency.

Unlike traditional bitcoin mining, cloud-based mining doesn’t require a user to own any computer hardware or have any technical expertise. Instead, vast numbers of computer "mining rigs"are housed in a facility owned by the company, and investors purchase contracts that entitle them to a share of the virtual currency that is created through mining.

BTCRUSH claims an investment in its mining investment program has been paying 4.1% interest daily on a lifetime contract since going live on March 8, 2018. According to the order, that means a $10,000 investment would return $410 per day and $149,650 over one year.

BTCRUSH promises investors a “100% satisfaction guarantee,” but also “reserves the right to amend” the interest rate it pays “without agreement from investors.”

Forex EA & Bitcoin Investment is directing Texans to contact the company at a number with a 281 area code, which covers the region in and around Houston.

The company is promising investors that a $5,000 investment will return $50,000 in 21 days, while intentionally failing to disclose its trading strategy and the widespread risk in trading bitcoin and foreign currencies.

Returns are guaranteed, the company says, by a fund of $500,000 “and climbing” that will make up any losses. The company, however, is providing no material information about the fund.

The order names James Butcher and Richard Dunn, who have a last known address in New York City and claim Forex EA & Bitcoin is a limited liability company with a place of business in New York. New York State’s Division of Corporations has no filings related to Forex EA & Bitcoin.

Both Forex EA and BTCRUSH are trying to convince investors that their offerings will not violate securities laws.

Forex EA is misleading potential Texas investors by providing a contract that purports to be governed by and construed in accordance with Texas law.

BTCRUSH requires investors to agree that a “‘private transaction rule” releases the platform from federal oversight, according to the order.

The so-called “private transaction rule,” which isn’t explained, does not exempt BTCRUSH from the Texas Securities Act because the company is offering investments in Texas.

None of the principals of either company is registered to sell securities in Texas, and the securities themselves are unregistered. Both are violations of the Texas Securities Act.

The orders require Forex EA and BTCRUSH to halt their offerings until they comply with Texas securities laws and regulations. The companies have 31 days to contest the order before the State Office of Administrative Hearings in Austin.

Emerging Investor Threat: Cryptocurrencies

The TSSB has found widespread fraud in investments that are supposedly tied to cryptocurrencies.

Read the results of a four-week investigation into crypto offerings and ongoing enforcement efforts.