Cryptocurrency Outlet Accused of Fraud in 2nd Investor Suit

January 30, 2018 | Back to News

“I’ve heard countless heartbreaking stories of people who believed the hype in this case, which is why we are suing the YouTube promoters who made millions,” Silver said, referring to several additional defendants named in the suit. “With responsibility comes accountability, and I look forward to seeing these defendants in court.”

Law360, New York (January 29, 2018, 9:57 PM EST) — The legal woes facing cryptocurrency marketplace BitConnect mounted Monday as the U.K.-registered lending and exchange platform was hit with a second class action complaint alleging it was a Ponzi scheme that cheated thousands of investors out of millions of dollars.

The complaint, filed by investor Brian Paige in Kentucky federal court, accuses BitConnect of exploiting the hype around cryptocurrencies to dupe investors into using their bitcoin to buy BitConnect Coins, or BCC, which investors were then allegedly supposed to lend back to BitConnect in exchange for returns generated by its secret proprietary trading algorithm.

“With this transaction, BitConnect promised to plaintiff and the class fixed returns as well as a guarantee that the principal investment/loan amount would be paid in full on date certain,” Paige’s complaint said. “Instead, BitConnect shut down its platform, took all of plaintiff and the class’s money, and left them with BCC, which is either entirely worthless or has significantly less value than BitConnect promised.”

The suit, which seeks unspecified damages and disgorgement as well as other injunctive relief, comes after BitConnect announced on Jan. 16 that it was shutting down its lending and exchange platform, saying that “continuous bad press,” cyberattacks and cease-and-desist letters from state securities regulators in Texas and North Carolina had made it too difficult to continue.

The value of BCC has plunged since the announcement, according to data from CoinMarketCap.com. The coin, which a month ago was trading north of $450, closed at roughly $256 on Jan. 15 and now trades around $7 as of Monday afternoon.

Paige’s suit alleges the risk of a shutdown like this wasn’t disclosed and was one of the many ways BitConnect purportedly misled its investors, who were allegedly told that returns were guaranteed, that their principal capital would be returned and that the platform presented “a safe way to earn a high rate of return on your investment without having to undergo a significant amount of risk.”

Investors, some of whom were allegedly recruited via promotional YouTube videos, were also encouraged to reinvest returns into the program, such that Paige and other investors who did receive interest payments “did not actually make money or keep those profits, and lost all profits when BitConnect closed down the lending program and left investors with worthless BCC,” the complaint said.

“We filed this to try to recover for those scammed by BitConnect and its promoters, and to put others on notice that they can’t take advantage of this emerging technology to hurt consumers,” Jasper Ward, an attorney for Paige, told Law360 in an email.

BitConnect’s closure followed a Jan. 4 emergency order from the Texas State Securities Board instructing the company to cease and desist from offering securities, acting as a securities dealer and otherwise engaging in securities fraud in Texas. The TSSB found that investments in BitConnect’s lending program counted as securities under Texas law and that BitConnect had been fraudulently offering them without the proper registrations.

North Carolina’s Secretary of State followed up on Jan. 9 with a similar cease-and-desist order requiring BitConnect to halt its operations in that state.

Paige references those orders in his complaint, which was filed on behalf of a proposed national class of BitConnect investors and a subclass of investors living in Kentucky.

The suit joins another proposed class action against the company filed last week in Florida federal court by six BitConnect investors, who claim to have lost more than $770,000 collectively on their investments and are seeking to represent a nationwide investor class along with a subclass for Florida residents.

Their complaint, which opens on a colorful note by quoting lyrics from the 2011 Broadway musical “Wonderland,” likewise alleges that BitConnect was a Ponzi scheme and pegs damages in excess of $2 billion.

“Sure enough, the crypto-Wonderland created by BitConnect was too good to be real,” the complaint said.

David Silver, an attorney for the plaintiffs in the Florida case, told Law360 in an email that he has heard from more than 1,500 BitConnect investors who have claimed losses ranging from $100 to $1 million.

“I’ve heard countless heartbreaking stories of people who believed the hype in this case, which is why we are suing the YouTube promoters who made millions,” Silver said, referring to several additional defendants named in the suit. “With responsibility comes accountability, and I look forward to seeing these defendants in court.”

Representatives for BitConnect did not return a request for comment sent through BitConnect’s website late Monday.

Paige is represented by Jasper D. Ward IV and Alex C. Davis of Jones Ward PLC as well as Abigale Rhodes Green of Abigale Rhodes Green Injury Law PLLC.

Counsel information for BitConnect was not immediately available.

The cases are Paige v. BitConnect International PLC et al., case number 3:18-cv-00058, in the U.S. District Court for the Western District of Kentucky and Wildes et al. v. BitConnect International PLC et al., case number 9:18-cv-80086, in the U.S. District Court for the Southern District of Florida.

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Cryptocurrency Outlet Accused Of Fraud In 2nd Investor Suit

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