Commissioner Fines Crypto-Investing Firms, Obtains Repayment for Investors

Feb 22

Utah-based firms that illegally sold unregistered cryptocurrency-mining investments paid a $25,000 fine to the State of Texas and will offer Texas residents full repayment of any money they invested.

Under the terms of a Feb. 21 Order, NUI Social LLC, Mintage Mining LLC, and related companies will begin contacting Texas investors with a rescission offer for the full amount of the investment minus any profits that were paid. Darren Olayan of Lehi, Utah, controls the companies.

The order is the first cryptocurrency enforcement action by a state regulator resulting in payment of a fine and a full rescission offer.

The order also determines that two of the companies’ cryptocurrency-mining investment offerings are securities under Texas law.

“No matter the industry or new technology involved, the Securities Board will take swift action against investment offerings that are in violation of the Securities Act,” Commissioner Travis J. Iles said. “Investors deserve the protection historically afforded by securities laws and regulations.”

Commissioner Iles entered an Emergency Cease and Desist Order against Olayan, NUI Social, and Mintage Mining in July 2018.

The order alleged widespread violations of the Texas Securities Act, including making deceptive claims to the public.

Olayan and Mintage Mining were telling investors that Mintage is “in compliance” with securities laws and “works to always stay ahead of cryptocurrency regulation.”

Advertisements for Mintage Mining claimed the company could generate returns of up to 250% annually by mining cryptocurrencies.

Neither Olayan nor Mintage Mining and NUI Social were registered to sell securities in Texas, and the investments themselves were not registered for sale or qualified for an exemption from registration.

NUI Social is a multi-level marketing company used to attract investors. NUI Social signed up “affiliate” individuals who received commissions for recruiting investors to buy cryptocurrency-mining investment contracts.

The Feb. 21 order settles a pending case at the State Office of Administrative Hearings and sets aside the 2018 emergency cease and desist order, replacing it with a new agreed order.

“The initial order against these companies is an example of the agency recognizing the illegal sale of securities and shutting down the offerings to Texas investors,” Iles said. “Because of the emergency order, the agency stopped the companies from soliciting money from countless Texas investors.”

Texas was the first state to take enforcement action against a promoter offering cryptocurrency-related investments, and Securities Commissioner Travis J. Iles has now entered a total of 18 enforcement orders.

In January 2018, Commissioner Iles took emergency action against BitConnect to stop the company from fraudulently offering multiple cryptocurrency-based investment programs.

BitConnect, based in England, issued its own currency, called BitConnect Coins, and told investors they could purchase BitConnect Coins through its website and then “lend” their BitConnect coins to the company. Its “BitConnect bot” would then pool their funds to generate profits of 40% per month.

Almost immediately after receiving notice of the emergency action, BitConnect closed its lending program, and BitConnect Coin’s market capitalization, which reached a high of $2.6 billion on Jan. 6, soon lost 98% of its value.

Citing the State Securities Board action, the FBI said this month it was seeking potential victims of the BitConnect fraud as part of a criminal investigation.

Why Certain Crypto-Related Investments Are Securities

Joseph Rotunda, Director of Enforcement for the State Securities Board, filed an Expert Report at the State Office of Administrative Hearings that provides guidance to the industry on the applicability of securities laws to cryptocurrency-related investment offerings.

Cryptocurrency Resources

Cyptocurrency Resources features:

  • Widespread Fraud Found in Cryptocurrency Offerings, a report on the Enforcement Division's investigation into offerings tied to virtual currencies
  • The 18 Enforcement actions the Securities Commissioner has taken in cryptocurrency-related administrative cases
  • A concise Cryptocurrency Glossary
  • Decrypting Cryptocurrency Scams, a Federal Trade Commission webcast on the emergence of scams tied to cryptocurrencies
  • Combatting Cryptocurrency Fraud, a Commodities Future Trading Commission panel on detecting and preventing fraud