Enforcement News: SEC Obtains TRO and Asset Freeze Against Cryptomining and Trading Company

• Posted on: May 11 2022

By: Jeffrey M. Haber

On May 6, 2022, the Securities and Exchange Commission (“SEC” or the “Commission”) announced (here) the filing of fraud charges against MCC International Corp. (“MCC”), which does business as Mining Capital Coin Corp., its founders Luiz Carlos Capuci, Jr. (“Capuci”) and Emerson Souza Pires (“Pires”), and two other entities controlled by Capuci, CPTLCoin Corp. (“CPTLCoin”) and Bitchain Exchanges (“Bitchain”), in connection with the unregistered offerings and fraudulent sales of investment plans called mining packages to thousands of investors. According to the SEC’s complaint (here), Defendants MCC, Capuci, and Pires allegedly received in excess of $8.1 million from the sale of the mining packages and $3.2 million in initiation fees. On April 21, 2022, the United States District Court for the Southern District of Florida issued a temporary restraining order against all defendants and an order freezing defendants’ assets, among other relief.

[Ed. Note: Cryptomining is the process of obtaining crypto rewards in exchange for verifying crypto transactions on distributed ledgers. Stated differently, cryptomining is the process by which new digital currencies are entered into circulation.¹ Networks use the process to confirm new transactions.²It is a critical component of a blockchain ledger’s maintenance and development.³]

According to the SEC, since at least January 2018, MCC, Capuci, and Pires sold mining packages to tens of thousands of investors worldwide and promised daily returns of 1 percent, paid weekly, for a period of up to 52 weeks. MCC also allegedly represented that the weekly profits were a result of “profit sharing” and that MCC earned profits from its operations involving cryptocurrency mining, trading stocks and foreign exchange, and trading cryptocurrency on digital asset trading platforms through the use of arbitrage trading and semi-automatic robotic trading.

The SEC also alleged that, in its early days, investors were promised returns in Bitcoin, but later defendants required investors to withdraw their investments in tokens called Capital Coin (“CPTL”), which was MCC’s own token. In addition, the SEC alleged that investors were required to redeem their CPTL on Bitchain, a fake crypto asset trading platform Capuci created and managed. However, when investors tried to liquidate their CPTL on Bitchain before their one-year memberships expired, they encountered purported errors that stymied their efforts and were required to either buy another mining package or forfeit their investments.

“As the complaint alleges, Capuci and Pires took every opportunity to extract more money from unsuspecting investors on false promises of outlandish returns and used investor funds raised from this fraudulent scheme to fund a lavish lifestyle, including purchasing Lamborghinis, yachts, and real estate,” said A. Kristina Littman, Chief of the SEC Enforcement Division’s Crypto Assets and Cyber Unit. “The restraining order and asset freeze helps preserve investor assets and puts a stop to the defendants’ alleged ongoing fraudulent enterprise.”

The SEC’s complaint charges defendants with violating the registration and anti-fraud provisions of the Securities Act of 1933, the Securities Exchange Act of 1934 (“Exchange Act”), and Capuci and Pires with control person liability on behalf of MCC under the Exchange Act. The SEC seeks injunctions against future securities law violations, disgorgement, civil penalties, and officer and director bars against Capuci and Pires.

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.

References

1. Hong, Euny, “How Does Bitcoin Mining Work?”, Investopedia (Updated May 5, 2022) (here).
2. Id.
3. Id.