Texas Continues Look into Cryptocurrency Investments

After shutting down what officials called a fraudulent cryptocurrency lending platform, the state’s securities commissioner has issued an emergency cease and desist order for another.

by Karen Robinson-Jacobs, The Dallas Morning News / February 5, 2018
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(TNS) — The Texas Securities Commissioner is continuing its crackdown on unregistered investment pitches tied to cryptocurrency by issuing its fourth emergency cease and desist order.

Late last week commissioner Travis J. Iles entered the emergency order against DavorCoin, an entity offering investments in a cryptocurrency lending program in Texas.

The emergency order found that DavorCoin told investors they can earn whopping profits by investing in a lending program based on a new cryptocurrency known as davorcoin. Investors allegedly purchase davorcoin (the currency) and then lend it to DavorCoin (the entity).

DavorCoin said an investor lending $30,000 in davorcoin can earn $15,390 in the first month of the program and receive $107,217 after 120 days, according to the order.

DavorCoin, however, is not providing any details about how it will generate such profits, according to a release from the commissioner's office. DavorCoin also is not disclosing the identity of its principals or its place of business, claiming instead that "due to tax and regulation risks," it "cannot officialize its domiciliation."

DavorCoin appeared to step up marketing of its lending program after the closure of another cryptocurrency lending platform, BitConnect.

Commissioner Iles on Jan. 4 entered an emergency cease and desist order to stop BitConnect's "illegal and fraudulent offers of a different lending scheme."

Iles warned would-be investors about investing in cryptocurrency-backed programs "without determining exactly what they are investing in."

"Promoters of fraudulent securitized cryptocurrencies are using technology in a way that conceals their identity and their actions," he said. "Ultimately, investors are investing in nothing more than a promise made through a website maintained by an anonymous group."

The Enforcement Division also found that DavorCoin is an unregistered firm and it is selling unregistered securities through affiliates, which violates the Texas Securities Act.

Officials with DavorCoin could not be reached for comment.

A DavorCoin website says it "has been created by bankers and traders from major financial institutions (based in London, Paris and other EU cities)."

"We realize the financial transactions in the world are going to be revolutionized by cryptocurrencies and blockchain technology. Based on this analysis, we've built a tech and financial team to create a blockchain platform to make worldwide financial transactions faster, cheaper and more reliable.

The SEC also has been scrutinizing operations of some cryptocurrency sellers.

The DavorCoin order is the fourth emergency action against unregistered, overseas companies selling investments tied to cryptocurrencies. The others are:

  • R2B Coin, a Hong Kong-based company selling investments in its own currency, r2b coin, and telling investors the coin "will never go down in value";
  • BitConnect, a United Kingdom-based company that at the time of the order claimed a market value of $4.1 billion for its BitConnect Coin currency;
  • USI-Tech, a Dubai-based company, which promised triple-digit returns from investments tied to the mining of Bitcoin.

The four companies named in orders have solicited Texas investors through websites, social media, and online advertisements.

DavorCoin has 31 days to challenge the order before the State Office of Administrative Hearings.

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