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Enforcement News: SEC Files Suit in Connection with $45 Million “Too Good To Be True” Scheme to Defraud

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  • Posted on: Jan 9 2023

By: Jeffrey M. Haber

In promoting a scam, fraud operators expect investors will jump at the opportunity to obtain a life-changing financial reward from their investment, especially if the investment opportunity does not require a large outlay of money. For this reason, many investment frauds involve false promises of extraordinary payouts with minimal risk. Unfortunately, too many investors are lulled into believing these promises and give their hard-earned money to these fraud operators. 

In today’s article, we discuss the foregoing “too good to be true” scenario with regard to CoinDeal, an investment opportunity that purportedly revolved around blockchain technology that would yield extremely high returns when defendants sold the business.

On January 4, 2023, the Securities and Exchange Commission (“SEC”) announced (here) that it charged the creator of Coin Deal (“Creator”) and seven others for their involvement in CoinDeal – a fraudulent investment scheme that raised more than $45 million from sales of unregistered securities to tens of thousands of investors worldwide.

According to the SEC’s complaint (here) filed in the U.S. District Court for the Eastern District of Michigan, defendants falsely claimed that investors could generate extravagant returns by investing in CoinDeal, which would be sold for trillions of dollars to a group of prominent and wealthy buyers. From at least January 2019 to 2022, Creator and four other defendants allegedly disseminated false and misleading statements to investors regarding the purported value of CoinDeal, the parties involved in the purported sale of CoinDeal, and the use of investment proceeds. According to the SEC, no sale of CoinDeal ever occurred and no distributions were made to CoinDeal investors. The SEC further alleged that defendants collectively misappropriated millions of dollars of investor funds for personal use, and that Creator used investor funds to purchase items such as cars, real estate, and a boat.

“We allege the defendants falsely claimed access to valuable blockchain technology and that the imminent sale of the technology would generate investment returns of more than 500,000 times for investors,” said Daniel Gregus, Director of the SEC’s Chicago Regional Office. “As alleged in our complaint, in reality this was all just an elaborate scheme where the defendants enriched themselves while defrauding tens of thousands of retail investors.”

In the complaint, the SEC alleged that defendants violated the anti-fraud and registration provisions of the Securities Exchange Act of 1934 and Securities Act of 1933. The SEC sought disgorgement plus pre-judgment interest, penalties, and permanent injunctions against all defendants; officer and director bars against Creator and four other defendants; and a conduct-based injunction against Creator. In June 2022, the U.S. Department of Justice indicted Creator in the U.S. District Court for the District of Nebraska on three counts of wire fraud and two counts of monetary transaction in unlawful proceeds for his involvement in CoinDeal (here).  If convicted, Creator faces up to 20 years in prison for each of the wire fraud counts and up to 10 years in prison for each count of engaging in unlawful monetary transactions.

Jeffrey M. Haber is a partner and co-founder of Freiberger Haber LLP.

This article is for informational purposes and is not intended to be and should not be taken as legal advice.

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