The Texas Securities Commissioner today issued an Emergency Cease and Desist Order against Bitconnect for the selling of unlicensed securities. According to the Texas State Securities Board news release:
“BitConnect is soliciting investors for cryptocurrency-based programs that the company claims will deliver annualized returns of 100% or more, according to the order entered Jan. 4 by Securities Commissioner Travis J. Iles.
“BitConnect, based in England, issues its own currency, called BitConnect Coins. The company says it has placed 9.4 million of the coins into the online cryptocurrency marketplace, representing a market value of $4.1 billion as of Jan. 3. The company has said it will issue a maximum of 28 million coins.”
British company, Texas ruling
As the release clearly states, Bitconnect is based in England and this order does not affect the company directly. However, the regulator does have the authority to ban Bitconnect from dealing with Texas residents. Of course, it is likely to be quite challenging for the company to separate users of Bitconnect tokens in Texas from those in the rest of the world.
While cryptocurrency enthusiasts have been largely focusing on regulation at the national level, Texas’ ruling shows that sub-national regulators can easily affect the regulatory landscape. This adds an extraordinary level of complexity to regulatory compliance`. Cryptocurrency users and businesses may find themselves dealing with countless state and provincial regulators, in addition to national authorities, if other jurisdictions follow Texas’ lead.
The Texas regulator harshly condemned Bitconnect, writing:
“BitConnect has disclosed virtually nothing about its principals, financial condition, or strategies for earning profits for investors. It has not provided a physical address in England.
“Despite providing no information on how it will make money for investors – including the algorithms behind the Trading Bot – BitConnect is touting its investments as a “safe way to earn a high rate of return.”
“Investing in cryptocurrencies, however, carries significant risk because of regulatory and legal actions, competition from other cryptocurrencies, and the extreme volatility in the price of many cryptocurrencies.”
The release continues, explaining in greater detail:
“The company operates websites and deploys online advertising to recruit sales agents, which it calls “affiliates.” The company provides marketing material to affiliates, including online presentations, and pays them commissions for referrals that result in investments in BitConnect programs.
“Sales agents for BitConnect are targeting Texas residents, as well as residents of other states, through websites, social media, and online marketplaces like craigslist.
The sales agents are not, however, registered as agents of BitConnect to sell securities in Texas.
“The Securities Commissioner’s action follows BitConnect’s recent announcement that it will hold an Initial Coin Offering (ICO) in the U.S. on Jan. 9. Companies use coin offerings, also called token sales, to raise capital.”