As part of the order dismissing claims against BitConnect class-action defendants Glenn Arcaro, Ryan Maasen and YouTube, a US court has definitively ruled that BitConnect was a securities offering.

In his August 23rd order, Judge Middlebrooks addressed Glenn Arcaro’s assertion that BitConnect wasn’t a securities offering.

Arcaro (right) put forward three defenses as to why BitConnect’s Ponzi scheme wasn’t a securities offering.

These related to the Howey Test, which serves as the legal standard for defining an investment contract to establish the presence of a securities offering on.


  1. Whether BitConnect required an investment of money;
  2. Whether BitConnect was a “common enterprise”; and
  3. Whether BitConnect affiliates expected profits solely from the efforts of BitConnect or a third-party.

With respect to requiring an investment of money;

Arcaro argues that the first element of the Howey test cannot be met because BCC can only be purchased with bitcoin.

Bitcoin is an unregulated cryptocurrency rather than a fiat currency, Arcaro argues, and so purchase of BCC is not an investment of money, per se.

This is the old “securities law doesn’t apply to cryptocurrency investment” arguments…

…and Judge Middlebrooks was having none of it.

l find such pedantry unavailing in the face of the broad and adaptable conceptions of investment contracts, as defined by the Supreme Court, and of securities, as contemplated by Congress.

l thus determine that Plaintiffs’ investment of Bitcoin satisfies the first element of the Howey test.

No matter how many times we tell people the vehicle a passive investment opportunity is made through is irrelevant, there seems to be an endless parade of MLM crypto Ponzi shills ready to argue otherwise.

Next Arcaro argued that BitConnect wasn’t a common enterprise because

BCC purchasers were never led to believe that their BCC purchases “would be used to invest in or develop any future product or common enterprise.”

To which Judge Middlebrooks replied;

This argument misses the forest for the trees: the Bitconnect platform itself was the common enterprise.

Those who purchased BCC did so in order to make a return on their investment; indeed, BCC appear to have no other purpose.

The success of an investment in BCC was inextricably linked to the value of the BCC, which in turn was “interwoven with and dependent on the efforts and success” of the Bitconnect Defendants, who were to operate the Bitconnect Lending Program and the Bitconnect Staking Program.

The investors had neither the desire nor the capacity to operate these investment program.

Additionally, to the extent that the Promoter Defendants received their com missions in BCC, as Plaintiffs allege, the efforts of the promoters are also a fundamental part of the enterprise.

An enterprise ”need not be so all-encompassing as to constitute an “ecosystem” in order to satisfy the Howey test, of course, but the Consolidated Complaint does in fact allege a complex and self-reinforcing common venture built around the Lending Program and its apparently nonexistent bitcoin trading algorithm.

“The commonality element is present as long as the fortunes of all of the investors are tied to the expertise and efforts of the promoter.”

That standard is certainly met here.

I’m starting to really like this guy.

With respect to expecting profits from BitConnect, Judge Middlebrook stated;

Arcaro contends that the third element was not satisfied because BCC owners retained control of their purchases, but this argument denies the economic reality of the investor-plaintiffs.

Arcaro relies on Alunni v. Dev. Res. Grp., LLC, but BCC, unlike the condominiums in Alunnis have a limited range of uses.

Apparently only three, in fact: BCC could be invested in the Bitconnect Lending Program, invested in the Bitconnect Staking Program, or exchanged with other currencies.

Considering these options—either place your BCC in a  Bitconnect-operated program, in which case profitability depends on the program ‘s operation, or unload it it is clear that “the efforts made by those other than the investor are the undeniably significant ones.”

Especially considering that the valuation of BCC was also largely dependent on the actions of Bitconnect, l find that the investors’ profits were dependent on the efforts of others such that the third prong of the Howey test is satisfied.

Having rejected each of Arcaro’s assertions, Judge Middlebrook concluded;

Accordingly, I determine that BCC constitute investment contracts under Howey, and that they are thus subject to the provisions of the Securities Act of 1933.

Legally speaking the victory is hollow, as Arcaro was ultimately dismissed as a defendant in the BitConnect class-action.

But there might be legal ramifications stemming from Judge Middlebrook’s analysis down the line.

When the DOJ and/or SEC start filing their respective BitConnect cases, Judge Middlebrooks analysis strengthens their own analysis.

Whether BitConnect was a security or not will be at the heart of any case the SEC brings forward.

The DOJ pursues criminal matters but the ruling is also relevant to any BitConnect related litigation they eventually file.

I get the feeling the SEC’s cases will hinge on BitConnect being a security (obvious), while the DOJ’s cases will rest on the extent of criminal misconduct stemming from BitConnect unregistered securities offering.

Either way, bad news for BitConnect scammers.

Things are progressing in slow motion but, as Judge Middlebrook’s ruling shows, defending profiting off of BitConnect is unlikely to stand up in court.