$62 Million Global Crypto Fraud Scheme Grabs Federal Attention

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DOJ and SEC Bring Charges Against Executive in Alleged $62 Million Global Crypto Investment Fraud Scheme

On May 6, 2022, the Department of Justice (DOJ) announced that a federal district court in the Southern District of Florida unsealed an indictment charging the founder and CEO of Mining Capital Coin (MCC), a cryptocurrency mining and investment platform, for allegedly orchestrating a $62 million global investment fraud scheme. The defendant was charged with conspiracy to commit wire fraud, conspiracy to commit securities fraud, and conspiracy to commit international money laundering.  

According to the indictment, the defendant allegedly misled investors about MCC’s cryptocurrency mining and investment program, which offered investors the opportunity to invest in MCC by purchasing “Mining Packages.” The defendant and his co-conspirators allegedly claimed that an international network of cryptocurrency mining machines could generate substantial profits and guaranteed returns by using investor money to mine new cryptocurrency. The defendant also allegedly touted MCC’s own cryptocurrency, Capital Coin, and MCC’s “Trading Bots,” which he represented were capable of executing thousands of (high frequency) trades in seconds, generating additional profits. The indictment alleges that, in reality, the defendant operated a fraudulent investment scheme and did not use investor funds to mine new cryptocurrency, but instead diverted the funds to cryptocurrency wallets under his control.

The same day, the Securities and Exchange Commission (SEC) announced civil charges against the same defendant, as well as MCC, two other entities the defendant controlled, and a second MCC founder. According to the SEC complaint, the defendants sold the Mining Packages to 65,535 investors worldwide and promised daily returns of 1 percent, paid weekly, for a period of up to 52 weeks from operations involving cryptocurrency mining, trading stocks and foreign exchange, and trading cryptocurrency on digital asset trading platforms through the use of arbitrage trading and semi-automatic robotic trading.

The SEC’s complaint charges the defendants with violating the registration and anti-fraud provisions of the Securities Act of 1933 and the Securities Exchange Act of 1934, and charges the individual defendants with control person liability on behalf of MCC under the Securities Exchange Act of 1934. The SEC’s complaint seeks injunctions against future securities law violations, disgorgement of the defendants’ ill-gotten gains, civil penalties, and officer and director bars against the individual defendants.

The DOJ press release can be found here, and the SEC press release can be found here.

SEC Settles Charges that Technology Company NVIDIA Had Inadequate Disclosures about Impact of Crypto-Mining on Gaming Business

On May 6, 2022, the SEC announced that it settled charges against technology company NVIDIA Corporation for allegedly making inadequate disclosures relating to the impact of crypto-mining on the company’s gaming business.

According to the order, the SEC found that in two quarterly Forms 10-Q in FY 2018, NVIDIA failed to disclose that crypto-mining was a significant element of its material revenue growth from the sale of its graphics processing units designed and marketed for gaming. As demand for crypto increased in 2017, NVIDIA customers allegedly increasingly used its gaming graphics processing units for crypto-mining, creating significant earnings from a volatile business, information that NVIDIA allegedly failed to disclose to investors. The SEC order also found that NVIDIA’s allegedly material omissions were misleading, given that NVIDIA did make statements about how other parts of its business were driven by demand for crypto, creating the impression that the company’s gaming business was not significantly affected by crypto-mining.

The SEC alleged that NVIDIA violated Section 17(a)(2) and (3) of the Securities Act of 1933 and the disclosure provisions of the Securities Exchange Act of 1934, and that NVIDIA failed to maintain adequate disclosure controls and procedures. According to the SEC, NVIDIA agreed to a cease-and-desist order and agreed to pay a $5.5 million penalty, without admitting or denying the SEC’s findings. 

The SEC press release can be found here.

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