Following an internal investigation, Argentina’s CNV has acquitted Generation Zoe founder Leonardo Cositorto.

The CNV found that, although Generation Zoe was an MLM crypto Ponzi that defrauded consumers out of $747 million pesos (~$36.1 million USD), Cositorto didn’t “operate with bonds, shares or other negotiable securities”.

CNV finding that Ponzi schemes are not unregistered securities offerings flies in the face of conventional regulation elsewhere in the world.

In the US, the Howey Test is used to determine the presence of an investment contract.

An investment contract exists if there is an “investment of money in a common enterprise with a reasonable expectation of profits to be derived from the efforts of others.”

The presence of an investment contract constitutes a securities offering, which opens up bad actors to securities fraud. Typically wire fraud and money laundering charges are also bundled in.

While the terminology and exact process might differ in other countries, typically every jurisdiction with a regulated financial market has a similar process for identifying securities offerings.

Application of the Howey Test to Generation Zoe’s business model is as follows:

  1. Generation Zoe participants invested 0.1 ETH into Generation Zoe (a common enterprise)
  2. This was done on the promise of an advertised 3.94 ETH ROI (a reasonable expectation of profits)
  3. Generation Zoe’s ROI payments were paid out of subsequently invested ETH, derived via direct and indirect recruitment of new investors (the efforts of others)

Nonetheless, as reported by Infobae on February 4th;

The National Securities Commission (CNV) acquitted Leonardo Cositorto , Generación Zoe and Universidad del Trading, considering that they did not infringe the capital market law.

The CNV’s final decision determined the acquittal, considering that there was not enough evidence to confirm the alleged violations.

“We do not like Cositorto, but we cannot sanction him for something he did not do,” they concluded.

Having been cleared of civil fraud charges by an evidently unfit for purpose financial regulator, Cositorto (right) must still defend criminal charges brought against him.

Naturally after CNV’s decision Cositorto took to social media, which he openly accesses through an illegal cell phone whilst incarcerated, to boast;

Can’t say I blame him. It’s not every day a country’s top financial regulator blesses your three-quarters of a billion pesos Ponzi scheme.

In acquitting Cositorto, who during Generation Zoe’s run lied about having CNV approval, the regulator stressed

this conclusion “does not imply, under any circumstances, that the actions reported and being processed in court cannot constitute criminal offenses.”

Well, that is unless Argetina’s courts decide to bless Cositorto’s Generation Zoe fraud too I guess.

Cositorto is facing four criminal cases in four Argentinian provinces. Following a brief recess, Cositorto’s first criminal trial in Goya resumed on February 4th.