Texas Issues Cease And Desist Orders To Cryptocurrency Lending Platforms

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February 5, 2018 10:08 PM

Texas officials targeting cryptocurrency startups soliciting state residents have issued a pair of fresh “Emergency Cease and Desist” orders.

Filed on February 2, 2018, another “Emergency Cease and Desist” order has been issued by the Texas State Securities Board (TSSB), this time against cryptocurrency startup DavorCoin.

According to the emergency order entered by Texas Securities Commissioner Travis J. Iles, DavorCoin advertised huge returns to investors; an investment of $30,000 was advertised as providing a $15,390 return in just 30 days. After 120 days, DavorCoin said the investment could be worth as much as $107,212. The Enforcement Division also found evidence to suggest that although DavorCoin is an unregistered firm, it is offering securities for sale via its affiliates.

The TSSB said that DavorCoin did not reveal the methods it will use to generate profits, nor did it disclose where the business operates. In addition, DavorCoin did not identify who was operating the company, on grounds that “due to tax and regulatory risks,” it would be unable to “officialize its domiciliation.”

According to the TSSB, after both Texas and US Securities and Exchange Commission officials filed similar orders against Bitconnect – which shut down soon after – DavorCoin stepped up its marketing efforts.

In response to BitConnect’s closure, DavorCoin stated, “[this] does not change anything for us.” DavorCoin maintained that it had become “the number one lending platform in the world!”

DavorCoin may challenge the order for up to 31 days from the date of filing.

In a similar case, last month on January 24, the TSSB targeted another cryptocurrency startup based in Hong Kong named R2B Coin, with an “Emergency Cease and Desist” order.

R2B had advertised a “pre-mined” cryptocurrency, also referred to as “Asian Currency,” that was due to launch on the Ethereum blockchain. R2B maintained that its cryptocurrency was one of the ecosystem’s “most stable” and had “become recognized as one of the leading cryptocurrencies in the world.” Beyond that, R2B claimed that within 1 to 5 years its cryptocurrency would be “among the top 10 currencies,” and that it “is set out to be among the 5 largest and most usable digital currencies in the within [sic] 2019.”

It doesn’t end there; inconsistencies abound on R2B’s official website. For instance, an image appears on the site that purportedly depicts “Business Director Eddie Lo”; however the same photo is used in association with an individual named “George Curry” on another portion of the site. The website also falsely claimed that its managing affiliate, “Williams Corporation,” which operates out of Hong Kong and Dubai, was both a “licensed and brokered” global firm and a “licensed securities dealer,” when in fact it was neither registered with the State Securities Board nor the Financial Industry Regulatory Authority.

Marketing affiliates for R2B solicited Texas residents over the phone to participate in a “pre-trade sales period.” Beyond that, R2B’s statements to prospective investors included claims that the coin would be an “unlimited” growth opportunity following bitcoin’s surge in valuation, and that the nature of the investment would be “passive,” requiring no actions on the investor’s behalf beyond providing an initial sum.

In all, the TSSB said that R2B committed fraud, failed to disclose the basis for how it calculates the value of the coins it is issuing, and furthermore must immediately cease and desist from offering securities in the state pursuant to the Texas Securities Act.

Texan regulators have had a lot on their plate: in addition to the filing against Bitconnect in early January by state officials, the state‘s banking commission also clamped down on AriseBank, for violating the law and using the term “bank” in its name, when it was not registered to do so.

Jeremy Nation is a writer living in Los Angeles with interests in technology, human rights, and cuisine. He is a full time staff writer for ETHNews and holds value in Ether.

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