Automata - SEC Files Suit Against “Robotic” Cryptocurrency Multi-Level Marketing Scheme
The U.S. Securities and Exchange Commission (SEC) charged two promoters for acting as unregistered brokers. The SEC action was filed in tandem with a criminal indictment by the U.S. Department of Justice against the same defendants.
The defendants sold the securities of AirBit Club, an investment scheme that targeted Spanish-speaking communities and promised high returns from investments in cryptocurrency though the use of “automated robots” connected to “international exchanges”. The scheme also compensated members to attract others to the scheme. It does not appear that there were any cryptocurrency or other investments made of the AirBit Club.
The SEC alleges that the defendants solicited investors for AirBit Club through social media platforms and in-person meetings, without registering with the SEC. According to the SEC, the defendants posted videos to thousands of followers on their YouTube channels and received substantial compensation from AirBit for the sale of the securities. Airbit Club was a classic pyramid scheme where the funds raised by the defendants were used to purchase luxury goods and repay existing investors. The SEC alleges the defendants in addition to taking part in a fraud, failed to register as a broker-dealer in violation of Section 15(a) of the Securities Exchange Act of 1934.
The case represents a trifecta of enforcement priorities: illegally offered securities, sold by unregistered brokers, using a multi-level marketing affinity scheme. This case is like other SEC enforcement actions involving crypto currencies in which fraudsters attract investors with promises of substantial returns in purported digital assets and blockchain technology.