SEC makes it clear cryptocurrency not exempt from securities laws
If one was to sum up the MLM industry in 2017, there is no doubt it is the year cryptocurrency opportunities took off.
Sadly I’ve yet to see one that’s even remotely legitimate, with the vast majority simply fiat Ponzi schemes swapped out with a cryptocurrency (be it bitcoin, an ICO, or non-publicly tradeable points).
Here at BehindMLM we observed the marriage between cryptocurrency and MLM emerge during 2014.
Over 2015 and 2016 the MLM cryptocurrency niche grew rapidly, mostly due to the ruthless targeting of those new to cryptocurrency. What might have started out as genuine attempts to spread cryptocurrency awareness, soon saw “let met educate on cryptocurrency” deteriorate into “let me pitch you on my latest Ponzi scam”.
In 2017 the development of off-the-shelf ICO scripts and meteoric rise of bitcoin’s value, meant all of a sudden everyone in MLM was a “cryptocurrency expert”.
As has the development side of the MLM cryptocurrency niche taken a few years to get going, so too has regulation. At least in the US.
Whereas Europe for the most part apart appears to be content issuing warnings and then sitting back and watching investors lose millions of dollars, SEC Chairman Jay Clayton has revealed a decidedly different approach.
BehindMLM’s stance on MLM cryptocurrency investment opportunities has been that they are clearly securities offering.
The legal definition of a security in the US encompasses any passive investment opportunity.
As far as MLM goes, the formula behind pretty much every MLM cryptocurrency opportunity is thus:
give us money + cryptowaffle = sit back and we’ll pay you more than you gave us
“Cryptowaffle” could be anything from mining, an ICO launch, crypto trading, arbitrage and so on and so forth.
Regardless of the ruse, you’d have to be blind not to be able to readily identify a securities offering.
Or intentionally deceptive.
Signalling what the MLM cryptocurrency niche can expect from the SEC going into 2018, on December 11th Chairman Jay Clayton published a “Statement on Cryptocurrencies and Initial Coin Offerings“.
In his statement, Clayton advised
market participants should treat payments and other transactions made in cryptocurrency as if cash were being handed from one party to the other.
This is key in destroying the myth that just because a Ponzi scheme is using cryptocurrency, somehow the rules don’t apply to them.
Or as Clayton puts it, ‘We are hearing the familiar refrain, “this time is different.”’
Investors should understand that to date no initial coin offerings have been registered with the SEC.
There is substantially less investor protection than in our traditional securities markets, with correspondingly greater opportunities for fraud and manipulation.
If you choose to invest in these products, please ask questions and demand clear answers.
Sadly this is advice that most MLM cryptocurrency investors choose to ignore.
Time and time again in our MLM cryptocurrency reviews we’ve noted a lack of disclosure of ROI revenue.
When asked, owners of these companies palm the question of with “coming soon” excuses, proof of external revenue generation (but not of it being used to pay ROIs with), or claims of “proprietary secrets”.
Put bluntly, none of those responses are acceptable.
Especially when there’s a good chance invested funds are being squirreled away offshore without investor knowledge.
Please also recognize that these markets span national borders and that significant trading may occur on systems and platforms outside the United States.
Your invested funds may quickly travel overseas without your knowledge.
As a result, risks can be amplified, including the risk that market regulators, such as the SEC, may not be able to effectively pursue bad actors or recover funds.
Perhaps the most pertinent question anyone considering an MLM cryptocurrency offering can ask is, “If this was in fiat (USD, EUR etc.), would I be getting involved?”
If you can swap out cryptocurrency for fiat in a business model and clearly identify a Ponzi scheme, make no mistake – that business model is still a Ponzi scheme with cryptocurrency swapped back in.
In an effort to assist potential investors, Jay Clayton provides the following due-diligence sample questions:
-Who exactly am I contracting with?
-Who is issuing and sponsoring the product, what are their backgrounds, and have they provided a full and complete description of the product?
If you can’t identify who is running the company, forget about the business model – run.
Do they have a clear written business plan that I understand?
Thankfully this isn’t an issue in the MLM cryptocurrency space.
As I stated previously, most MLM cryptocurrency offering can be boiled down to:
invest money + “Wowowow cryptocurrency!” = receive more than you invested
Who is promoting or marketing the product, what are their backgrounds, and are they licensed to sell the product?
At the top of every MLM cryptocurrency company are either management or investors with a long history of participation in fraudulent schemes.
You only need to research their names to confirm this.
Have they been paid to promote the product?
Where is the enterprise located?
Be particularly wary of MLM cryptocurrency companies pitching to US residents that claim to be based in offshore jurisdictions with little to no regulation (anywhere in the UAE, BVI, Seychelles, Cyprus, Hong Kong, anywhere in Africa etc.).
Where is my money going and what will be it be used for? Is my money going to be used to “cash out” others?
This is key to identification of a Ponzi scheme.
If you can’t verify external revenue is being used to pay ROI and commissions (accept nothing less than third-party audited accounting reports), your invested funds are being used to pay existing investors.
It’s really that simple.
What specific rights come with my investment?
MLM cryptocurrency investors have no rights. Their accounts can be terminated at whim.
-Are there financial statements? If so, are they audited, and by whom?
-Is there trading data? If so, is there some way to verify it?
No third-party audited accounting verifying the use of external revenue to pay ROIs? You’re in a Ponzi scheme.
-If a blockchain is used, is the blockchain open and public?
-Has the code been published, and has there been an independent cybersecurity audit?
Although this model has mostly given way to bitcoin-based Ponzi schemes, there’s still a lot of money tied up in failed non-public coins.
There’s a good chance any MLM company that claims to have a blockchain for their coin but won’t let you see it, doesn’t actually have one (meaning they’re entire business model is simply a ruse).
-Has the offering been structured to comply with the securities laws and, if not, what implications will that have for the stability of the enterprise and the value of my investment?
As discussed above, switch out cryptocurrency for cash. Can you see a passive investment opportunity that requires registration with a securities regulator?
The SEC’s Edgar database is free to search. If you can’t find your MLM cryptocurrency company in the SEC’s database, they’re operating illegally.
The bottom line?
any such activity that involves an offering of securities must be accompanied by the important disclosures, processes and other investor protections that our securities laws require.
A change in the structure of a securities offering does not change the fundamental point that when a security is being offered, our securities laws must be followed.
Here’s to the SEC reigning in MLM cryptocurrency Ponzi fraud in 2018.
Worth adding this note:
Mining Max, a US cryptomining firm, primarily marketed toward South Koreans, was shut down by South Korean Authorities for being a ponzi scheme selling bogus virtual mining and generating fake Ethereum returns. Top net winners were arrested as accessories.
On my list to cover later today.
Got some housework BS to get through first.
That is a clear and concise post.
It makes for a good reference document to wave in the face of these misaligned ponzi garden gnomes, well done OZ.
BRILLIANT wrap up Oz. 2017 has seen your site go to even greater heights.
Thanks for the incredibly precise and wonderful insights. Compliments of the season………
Thank you Oz.
We are sharing more and more of your content trying to keep people solvent and free of scams.
Not only within our business, but in the various FB groups I run.
Have a great and restful Christmas and a Happy scam free New Year.
corners oz, scrub the corners.
then you can wear your scambusting superman gear again. cant get it soiled!
whatta multitasker! 🙂
Thanks for the support y’all. Merry Christmas all round!
Very useful article and looking forward to using it to advise Irish Affiliates how to try and get their money back from OneCoin.
Great work, Oz! As always. The point of contention for me still remains, “What products and services of tangible value can I purchase with cryptocurrency right now, at this particular moment in time?
“What purpose does it serve me to pay (invest) my country’s denomination into a digital currency which promises to increase the value of my dollars at some future point in time?
And “Who can I trust?”
If there are no clear, straight to the point answers to the above, it’s best to take a watch, wait, and see attitude.
For now, it appears there’s a high fever pitch involvement in paying into a speculative scheme and getting back more than one puts in at the expense of other indivuals’ ignorance and gullibility as they do the same in return.
Of course, I may be entirely wrong or getting warmer to the truth of the reality.
Been here on and off for 5 years (since Zeekler). Amazing how much has changed, how much has stayed the same, and how much got worse.
it seems the SEC is in a full on attack mode as far as cryptocurrency fraud is concerned.
on 19th january, 2018 the SEC and CFTC released this joint statement:
all the MLM and ponzi crypto scams using creative styles of pseudocompliance or hiding behind real tech like whitepapers or even real blockchains, better look out.
the sec will look beyond the ‘form’ and at the ‘substance’ underlying the scheme.
you have been warned.
That statement was so short I didn’t think it was worth covering it when I saw it. 🙂
just yesterday, the SEC shut down an ICO scam called AriseCoin.
though not an MLM, the promoters were selling the same BS about ‘automatic trading with secret algorithms’ which is used by so many lending crypto/ICO pyramid ponzi scams these days.
and in closing the SEC makes it clear:
it was a good run for the crypto/ICO/trading technobabble scams.
now the regulators have woken up, so goodbye scammers, come back when you have something new.
Facebook also announced they’re banning any ads related to cryptocurrency.
yes, Oz and now shared widely.
I was in a FB group yesterday, when this popped up.
Total outcry from the scammers. Shame.
Testimony to the Senate from SEC Chairman Jay Clayton on cryptocurrency regulation: sec.gov/news/testimony/testimony-virtual-currencies-oversight-role-us-securities-and-exchange-commission
Nothing particularly new in the testimony but all signs pointing to ongoing regulation in the MLM cryptocurrency niche.
I know the cross-border issues are delaying action but they really just need to make a few examples and that’ll be it.
Historically the MLM underbelly has been quick to abandon a business model once the SEC moves in on one or more companies.
MLM attorney jeffrey babener has published an article about cryptocurrency based scams which have all but conquered the MLM underbelly space and are hurting the branding of MLM as a legit industry:
behindmlm gets an honorable mention from babener as a dedicated reporter and exposer of these scams [Yayy!!]:
you can read the full article here: