February 7, 2023

Volume XIII, Number 38


February 06, 2023

Subscribe to Latest Legal News and Analysis

SEC Files Suit Against Five Alleged Promoters of Crypto Lending Program

The U.S. Securities and Exchange Commission (“SEC”) brought an action in the United States District Court for the Southern District of New York against five alleged promoters of a digital asset called BitConnect, claiming they promoted the sale of unregistered securities that raised over $2 billion from retail investors last Friday.[1]  According to the SEC’s complaint, between January 2017 and January 2018, four of the defendants promoted BitConnect by advertising its “lending program” to retail investors, while receiving a percentage of the funds they obtained, without being registered as broker-dealers with the SEC.  Specifically, the SEC alleged these four defendants promoted and touted BitConnect’s “lending program” to prospective investors, including by posting testimonial-style videos to YouTube with a referral link to the “lending program.”

The SEC’s complaint alleges that four of the defendants violated section 15(a) of the Exchange Act and sections 5(a) and 5(c) of the Securities Act, while another defendant aided and abetted securities violations.  Section 15(a) of the Exchange Act requires securities brokers to be registered with the SEC or, if they are individuals, to be associated with a brokerage firm registered with the SEC. [2]  Sections 5(a) and 5(c) of the Securities Act require an issuer of securities to register offers and sales of those securities with the SEC, absent certain exemptions.[3]  The SEC’s complaint seeks injunctive relief, disgorgement plus interest, and civil penalties.

Anyone looking to promote a digital asset should proceed with caution because such actions may constitute a sale of a security.

[1] Complaint, Securities and Exchange Commission v. Trevon Brown et al., No. 1:21-cv-04791 (S.D.N.Y May 28, 2021).

[2] 15 U.S.C. § 78o(a).

[3] 15 U.S.C. § 77e(a).

Copyright ©2023 Nelson Mullins Riley & Scarborough LLPNational Law Review, Volume XI, Number 153

About this Author

Daniel Newman Litigation Attorney Nelson Mullins Riley & Scarborough LLP

Daniel is an experienced litigator of complex commercial, securities, and construction matters in state and federal courts and before various arbitration forums.

Daniel represents both plaintiffs and defendants in a variety of business and securities-related litigations, including commercial torts, contracts, shareholder derivative actions, class actions, and common law and statutory securities fraud actions.

Megan Kilissanly Lawyer with Nelson Mullins Riley & Scarborough LLP Law Firm

Megan’s practice includes representing clients in commercial litigation and securities matters.

Previous Professional Experience

  • Summer associate and law clerk at Nelson Mullins (2018-2019)
  • Judicial intern to the Hon. Marcia G. Cooke, U.S. District Court for the Southern District of Florida (2017-2018)
  • Legal intern, Miami-Dade State Attorney’s Office (2017)