A class action lawsuit filed against several promoters details the sudden rise and fall of BitConnect. If the cryptocurrency start up’s figures are correct, almost $2.5 billion of investor monies was wiped out in just a few hours. The meteoric rise and subsequent crash of BitConnect highlights the dangers in cryptocurrency investing.
Earlier this week, a class action lawsuit was filed in a Palm Beach, Florida federal court. (The irony of the BitConnect case being filed in the Southern District of Florida was not lost on us, southern Florida is the fraud capital of the United States. This time, however, it is many of the victims and not the fraudsters who live in the Sunshine State.)
Six investors – two from Florida – claim they invested a combined total of $885,000 in the BitConnect scam. Their lawsuit aptly began with the lyrics to the Broadway play, Wonderland.
“Welcome to Wonderland / Where everything you see / I mean from ‘A’ to ‘Z’ / Ain’t what it seems to be.
“Welcome to Wonderland / Set phasers to stun / Turn off the lights when done / Good luck and thanks a ton / Ciao, baby, gotta run!”
We might have chosen different lyrics but agree that everything about the BitConnect scam seemed right out of an Alice in Wonderland fairy tale.
According to the lawsuit, “In mid-January 2018, BITCONNECT boasted a market cap of over $2.5 billion. However, that purported fortune appears to have been built through the use of fraudulent means and a wide-reaching Ponzi scheme that defrauded investors, made a mockery of state and federal securities laws, and employed an army of social media mercenaries who were paid to bring more unsuspecting victims into the fraud. “
Lots of investors who lost their life savings claim they were the victim of a Ponzi scheme. In this case, we believe them. BitConnect was promising investors up to 40% returns. MONTHLY returns. GUARANTEED returns.
We have all heard the adage if its sounds too good to be true it probably is. But given the crazy rise of other cryptocurrencies, it isn’t too much of a stretch to believe these claims. We also are not in the business of blaming victims.
If you think the 567% percent interest based on 40% month (compounded monthly) is crazy, BitConnect was also guaranteeing an additional 1% rate of return daily. That compounds into 3000%. With these returns, a $10,000 investment should have been worth $9,450,000. And some wonder why people are cashing in their pensions and mortgaging their homes? (A $1000 investment would be worth $50 million in just 3 years according to the complaint.)
Marketing the BitConnect Scam
So how did BitConnect get people to buy in? According to the lawsuit, they were aiming for middle class and senior investors. Folks that could pony up $50,000.
The complaint names several individuals who acted as promoters. These folks would push the BitConnect scam on social media including slick YouTube videos and Facebook ads.
Court records say that BitConnect was marketed as “an open source all-in-one bitcoin and crypto community platform designed to provide multiple investment opportunities with cryptocurrency education where it is entirely possible to find the independence we all desire, in a community of like- minded, freedom-loving individuals who, like you, are seeking the possibility of income stability in a very unstable world.”
Initial investments in cryptocurrencies are frequently called ICO’s, short for initial coin offerings. We believe these coin offerings are securities. As such, they should be registered and vetted to insure they are suitable for their target audience. (BitConnect appears to be a cryptocurrency scam, Pyramind scheme and a multilevel marketing fraud all rolled in to one – the worst of all worlds.)
BitConnect was not registered and the promoters named in the complaint were not allied with legitimate brokerage firms. In fact, many of the cryptoscams we have investigated are nothing more than a slick website. It’s hard to know where the company is located or who is in charge. Often the websites are offshore. In this case, BitConnect claims it is registered offshore.
Lawsuit Against BitConnect
Victims of the BitConnect scam likely have a tough road ahead of them. Even if the lawsuit is successful, collecting will be difficult. Can the lawyers handling the case find billions of dollars? We suspect they can’t. In fact, victims will be lucky if they collect a few cents on the dollar. (Our comments are not meant to demean the lawyers handling the class case. Collecting from offshore con artists is extremely difficult, particularly in the cyber currency world where there is no way to trace the money once it becomes digital.)
BitConnect allegedly said in its marketing materials that their investment was “a safe way to earn a high rate of return on your investment without having to undergo a significant amount of risk.” Relying on Internet cryptocurrency marketing materials is probably not a smart thing to do, however.
Like many multilevel marketing schemes, BitConnect paid commissions to people who posted their own marketing websites or hyperlinks to websites. Your level in the pyramid determined the size of your commission. According to the company’s referral program,
- “BitConnect’s referral program is designed to provide 3 Levels of earning potential to you based on the number of lenders. You will earn a commission every time your referral lends BitConnect Coin (BCC) on our platform. Invite your friends and family to join BitConnect via your unique referral link to start earning a serous income from our bitcoin affiliate program”
How Do I Get Back my Money from a Cryptocurrency Scam?
We get asked this question frequently. Unfortunately, there are no easy answers. We hope the class case just filed against BitConnect will be widely successful, but we have our doubts. Suing people whose only business is a website is difficult. Suing people who likely have their assets tied up in other nontraceable cryptocurrency is even more daunting.
In fact, we limit our cryptocurrency fraud recovery and BitConnect scam efforts to cases where the promoter worked for a legitimate broker dealer or investment adviser. Securities industry rules say that brokerage firms can be responsible for the actions of their brokers even when those brokers are acting outside the scope of their employment.
Sometimes dishonest brokers will get a job at a small branch of an investment firm simply so they have access to business cards, a fancy office and the name of a well-respected company on their door.
When brokers sell products not authorized by their employer, they are said to be “selling away.” If you thought your broker was acting on behalf of his employer, the brokerage firm can be legally responsible even though they knew nothing of the investment.
Brokerage firms and investment advisory firms have a duty to supervise their agents. Letting them sell a BitConnect scam is not a good example of supervision.
If you lost money in BitConnect, Bitcoin or some other cryptocurrency and purchased through an investment adviser or stockbroker, give us a call. Our services are handled on a contingent fee basis meaning you don’t owe us anything unless we win your case and collect. [In rare instances we consider cases against third parties that may have facilitated the illegal conduct such as banks.]
For more information, visit our other BitConnect post or visit our cryptocurrency fraud information page. Ready to find out if you have a case? Contact us online or by email. We only consider cases with a minimum loss of $1 million.
Crypto Whistleblower Awards
Are you an employed by one of these questionable cryptocurrency issuers? You may be able to help us find justice for victims and claim a large whistleblower award. Please contact us at the address above. All inquiries are protected by the attorney – client privilege and kept confidential.