Published On: Thu, Dec 14th, 2017

Cryptocurrency Provides Another Avenue For Con Artists

Cryptocurrencies such as Bitcoin exist because of a collective trust. When fraud damages that trust values fall.


In the 1994 movie remake, “Miracle on 34th Streeta judge agrees that Kris Kringle is the real Santa when a six-year-old gives the judge an American dollar bill with the words “In God We Trust” circled. The judge realizes if the Department of Treasury can believe in God with no tangible evidence, then New Yorkers may believe in Santa Claus.

Money, which governments have said to be legal tender without the backing of physical commodities, is a concept. It exists because we trust. If we didn’t trust it wouldn’t work.

It’s not surprising when someone comes along and says, “Here’s a new currency and it’s based on nothing other than the fact it is scarce.” It’s also not surprising most people are suspicious.

Decentralized cryptocurrency is generated by the entire system — collectively. The rate of production is defined when the system is created and publicly known and trusted.

When that trust fails, the door is opened for fraud to walk through.


In August 2013, Texas’ Eastern District of the federal court ruled cryptocurrency may be used as money it is a currency and a form of money. This ruling permitted the SEC to take jurisdiction over cases of fraud involving cryptocurrency. Fraudsters flooded in like cheap jewelry at Mardi Gras.

GBL, a Chinese bitcoin platform shut down without warning in October 2013. Subscribers lost $5 million worth of bitcoin — instantly.

Four months later in February 2014, cryptocurrency was in the headlines because of Mt. Gox, the world’s largest — at the time — bitcoin exchange declared bankruptcy. The company claimed it lost nearly $475 million due to hacking. At the time the theft was the equivalent of 750,000 bitcoins.

March 2015 saw agents from the  Drug Enforcement Administration and Secret Service indicted on wire fraud, money laundering and other offense for stealing bitcoin amid the federal investigation into Silk Road, an underground black market shut down in 2013.

In December 2015 the owner of the then-popular GAW Miners website was indicted for fraud following his production of cryptocurrency called Paycoin. In a complicated scheme the owner claimed cloud miners, called “hash lets” were mining cryptocurrency inside Zenportal’s ‘cloud.’ In reality, there were no miners, and Zenportal had more than 10,000 users who had purchased a total of almost $20 million.

Cryptsy and Cryptsy’s owner was the recipient of a class action lawsuit in August 2016. The owner was charged with “misappropriating” millions of dollars in user deposits. Before he went to court, he destroyed evidence and left for China.

First Enforcement

On December 4, 2017, the SEC announced a move on an ‘initial coin offering’ (ICO) the SEC claims is crooked. The announcement was the first salvo in enforcement.

The SEC has been frustrated with the direction of ICOs. While securities regulations force demands on anybody offering new investments, ICOs look like securities products, but nearly all ICOs just ignore the SEC’s requirements.

Balancing that is the awareness that new cryptocurrencies may become a vital seed of conception and officials argue that several new cryptocurrencies are not shares— legitimately speaking.

That gap has the SEC proceeding cautiously. A warning came in 2016 when the SEC announced a fundraising campaign ran contrary to securities law. Now, the SEC is determining the succeeding steps and as it executes something it believes to be one of the more outrageous frauds in the ICO theater.

Dominic Lacroix

Filed in New York, the SEC’s complaint with Dominic Lacroix describes Lacroix as a “recidivist securities law violator.” The SEC views Lacroix’s project, PlexCoin to be a fast-moving fraud which raised over $15 million since August by promising a 13-fold return in less than 30-days.

The SEC wasn’t impressed by Lacroix’s claims and argued that PlexCoin has all the earmarks of a cyber scam.

While most ICOs are not scams, the SEC’s action is giving other ICO sponsors a reason to stop and think. Securities law reaches past combatting cons. Offering securities to the populace without adhering to the commission’s rules get people in a pile of trouble.

While the SEC began with PlexCoin, its enforcement won’t end there.

Author: Jerry Nelson


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