Russian Promoters, Offshore Crypto Bank Targeted in Orders

Sep 18

Texas Securities Commissioner Travis J. Iles took emergency action Sept. 18 to stop the fraudulent offerings of investments in three separate schemes involving cryptocurrencies.

Commissioner Iles entered separate emergency cease and desist orders against Coins Miner Investment Ltd., a cryptocurrency investment promoter operating in Russia; DGBK Ltd., an offshore digital “bank” that says it has developed hack-proof storage for virtual currencies; and Ultimate Assets LLC, a supposed cryptocurrency and foreign exchange trader.

Coins Miner Investment Ltd.: Alleged Russian Hoaxers

Coins Miner is soliciting funds from Texas residents by pretending to represent an established U.S. cryptocurrency platform.

According to the Emergency Cease and Desist Order, Coins Miner is manipulating its email solicitations to make them appear as if they came from Coinbase, a San Francisco-based company that operates an online platform for buying, selling, and storing digital currency.

Ana Julia Lara, a person affiliated with Coins Miner, falsely claims to work at Coinbase as a cryptocurrency trader. Lara is also sending prospective investors a photograph of herself with the president of Ripple, a cryptocurrency and transaction company, but the person identified as Lara is a vice president of CoinTelegraph Media Group.

The solicitation directs prospective investors to a website maintained by Coins Miner, where the company offers investments in programs tied to the mining of cryptocurrencies. On the site Coins Miner makes numerous fraudulent misrepresentations to try to make its investment offering appear legitimate.

The company claims it is based in the United Kingdom, but it operates in the Russian city of Volgograd.

Coins Miner has also misappropriated a video of a Fortune journalist to promote its offering. The video on the Coins Miner site shows the journalist discussing cryptocurrencies next to a superimposed Coins Miner logo.

Neither the journalist nor Fortune authorized the use of the video, which was filmed for Fortune as part of its coverage of cryptocurrencies.

Coins Miner has manipulated publicly available media in other ways. It posted stock video footage that purports to shows its “expert team” of technical and financial professionals, its office, and its computer hardware.

The Coins Miner investments are securities under Texas law, but the offerings are not registered for sale in Texas and neither Coins Miner nor Lara are registered to sell securities.

DGBK Ltd.: Soliciting Investors with Supposed Obama Endorsement

DGBK Ltd., also known as DigitalBank, is a Belize-based company that says it is developing a hack-proof device to store and transfer cryptocurrencies.

According to the Emergency Cease and Desist Order, DigitalBank is soliciting funds to develop a digital wallet for cryptocurrencies that can be opened using a person’s biometric data. Digital wallets that store virtual currencies are usually opened with a lengthy password known as a private key.

The company claims the wallet, which it calls a Photon Encrypted Ledger Key, will also permit the anonymous, untraceable transfer of both cryptocurrencies and fiat currency such as the U.S. dollar.

The Enforcement Division of the State Securities Board started investigating DigitalBank after a tip from a Texas resident who works in the cryptocurrency industry and was approached by a principal of DigitalBank.

DigitalBank is offering prospective investors both shares in the company and the opportunity to buy its own virtual currency, a digital token called DGBK. According to the company, investors who purchase the token now can earn a return of 1,900% once it is sold in an initial coin offering next year.

DigitalBank is making liberal use of a 33-second video of Barack Obama to promote itself. In the video, taken at the 2016 South by Southwest interactive festival in Austin, President Obama generally discusses advances in technology and encryption that may allow the creation of impenetrable devices and systems.

DigitalBank is telling investors to view the video to “try to understand what Obama in 2016 already understood about the company.” The company embedded the video throughout its website, on social media, and in correspondence to investors.

DigitalBank is not, however, informing prospective investors about its technical expertise or financial support. The company says it employs cybersecurity experts, blockchain and encryption engineers, and has the support of a major financial institution, but it is not naming or providing the background of most of them.

The investments DigitalBank is offering are securities regulated by Texas law, according to the order. Neither the company nor the principals named in the order are registered to sell securities in Texas.

DigitalBank and two of its principals are telling potential investors that they can participate in a “bounty program” that permits them to earn compensation for referring new investors to the company. But the company is not disclosing that participating in such a program requires a person to be registered to sell securities.

Ultimate Assets LLC: Allegedly Fraudulent Crypto, Forex Offerings

Ultimate Assets, which lists an address in Arlington, Mass., is publishing online advertisements soliciting Texas residents for its cryptocurrency and foreign exchange trading program. Ultimate Assets is telling potential investors that an initial investment of $1,000 will turn into $10,000 in three weeks.

Ultimate Assets and its representatives claim an initial investment in the trading program is fully guaranteed, according to the Emergency Cease and Desist Order. Its investment contract says, “a refund will be issued in cases where [the] investment could not yield profits.”

The investments being offered are securities under Texas law. Daniel Dishmon and John Jason Woodard, the individuals named in the order, are violating the Texas Securities Act by offering securities investments without being registered with the Securities Commissioner.

Ultimate Assets, Dishmon and Woodard are also engaging in fraud by failing to inform investors of the regulatory, market, and technical risks in the trading of cryptocurrencies and foreign currencies.

Ultimate Assets itself appears to be a phantom entity. It is not located at the address listed on its investment contract and the state of Massachusetts has no record of corporate filings by Ultimate Assets.

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