An Experienced And Trusted Advocate

Challenged Crypto Schemes

| Jun 27, 2023 | Securities Fraud / Investment Scams

If you have been a victim of investment fraud, contact an investment fraud attorney today.

In a civil lawsuit based on violation of the anti-fraud provisions of the Securities Exchange Act of 1934, a/k/a Rule 10b-5 violation, the following must be found by a preponderance of the evidence:

1. That defendant used an “instrumentality of interstate commerce” in connection with the securities transaction involved in the case

2. That defendant made a false representation of a material fact (or omitted a material fact) in connection with the purchase or sale of a security

3. That defendant acted “knowingly” or with “severe recklessness”

4. That plaintiff “justifiably relied” on defendant’s conduct

5. That plaintiff suffered damages as a proximate result of defendant’s wrongful conduct

6. That plaintiff suffered damages.

Miami-based investment adviser BKCoin Management LLC and one of its principals, Kevin Kang, charged with fraud in crypto asset scheme. Securities and Exchange Commission v. BKCoin Management, LLC, et al. No. 23-cv-20719 (S.D. Fla. filed February 23, 2023). BKCoin raised approximately $100 million from at least 55 investors, but BKCoin and Kang instead used some of the money to make Ponzi-like payments and for personal use.

Kang misappropriated at least $371,000 of investor money to, among other things, pay for vacations, sporting events tickets, and a New York City apartment. BKCoin materially misrepresented to some investors that BKCoin, or one of the funds, received an audit opinion from a “top four auditor,” when in fact neither BKCoin nor any of the funds received an audit opinion at any time. The SEC obtained an asset freeze, appointment of a receiver, and other emergency relief against BKCoin and Kang.

Utah-based Green United, LLC, its founder Wright W. Thurston, and Kristoffer A. Krohn charged with fraud in unregistered offering of crypto asset securities. Securities and Exchange Commission v. Green United, LLC, Wright W. Thurston, and Kristoffer A. Krohn, No. 2:23-cv-00159 (D. Utah filed March 3, 2023). Green United raised at least $18 million by selling “Green Boxes” and “Green Nodes” to investors, claiming they mined a digital token called GREEN on a purported “Green Blockchain.”

In reality, the Green Boxes mined Bitcoin, which was not transferred to investors. Green Nodes were basic software that did not generate GREEN. Thurston created the total supply of GREEN tokens in October 2018 and distributed them to investors wallets to create the appearance that GREEN was being mined. SEC recidivist Krohn, whom Thurston recruited and paid commissions to promote and sell Green Boxes, made numerous misrepresentations to investors about the present value of the GREEN token and returns on investment.

Nishad Singh, former Co-Lead Engineer of FTX, charged with fraud in multiyear scheme to divert customer funds to Alameda Research, a crypto hedge fund owned by Bankman-Fried and Wang. Securities and Exchange Commission v. Singh, No. 23-cv-1691 (S.D.N.Y. filed February 28, 2023). Singh created software code that allowed FTX customer funds to be diverted to Alameda, despite false assurances by Bankman-Fried that FTX was a safe crypto asset trading platform with sophisticated risk mitigation measures to protect customer assets. Singh was an active participant in the scheme to deceive FTX’s investors.

As FTX neared collapse, Singh withdrew approximately $6 million from FTX for personal use and expenditures, including the purchase of a multi-million dollar house and donations to charitable causes.

The SEC sued Terraform Labs and Do Kwon for allegedly selling unregistered crypto asset securities, including UST and LUNA. Securities and Exchange Commission v. Terraform Labs PTE Ltd and Kwon, No. 23-cv-1326 (S.D.N.Y. filed February 16, 2023). The SEC also alleges that Terraform and Kwon made false and misleading statements about the stability of UST and LUNA, which caused investors to lose billions of dollars when the value of the tokens plummeted.

The SEC’s lawsuit is a major development in the ongoing regulatory scrutiny of the crypto industry. The SEC has been increasingly active in enforcing securities laws in the crypto space, and this lawsuit is a sign that the agency is not afraid to go after high-profile players in the industry.

The lawsuit is also a reminder of the risks associated with investing in crypto assets. These assets are highly volatile and can lose value quickly. Investors should carefully consider the risks before investing in any crypto asset.