Investors File Class Action Against BitConnect After Closure

A class action suit has been filed against exchange and lending platform BitConnect, which recently closed following U.S. cease-and-desist orders.

AccessTimeIconJan 25, 2018 at 9:15 a.m. UTC
Updated Sep 13, 2021 at 7:29 a.m. UTC
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Just a week after the abrupt closure of BitConnect's lending and exchange platform, investors are seeking legal action to claim back their funds, according to public document.

The class action case (see below), filed with the Southern District Court of Florida on Jan. 24, alleges that BitConnect issued cryptocurrency tokens that were effectively unregistered securities and gathered additional funds as a "wide-ranging Ponzi scheme." The lawsuit was filed by David Silver from the Florida-based law firm Silver Miller, which has filed suits on behalf of cryptocurrency consumers including those seeking damages against mining company Giga Watt.

In light of the recent closure of BitConnect after receiving two cease-and-desist orders by U.S. state regulators, the plaintiffs are seeking to claim back the investments they put into the company.

The document states that BitConnect launched several projects, such as a lending program that required investors to send in cryptocurrencies to purchase BitConnect Coin, a token generated by the company's platform.

BitConnect then allegedly promised investors that its proprietary trading platform would use the funds to generate a monthly return of 40 percent or a daily compound rate at 1 percent, which could amount to 3,000 percent annually.

As such, the plaintiffs argue that BitConnect violated the Securities Act by issuing unregistered securities. The document further points to a statement claimed to be taken from BitConnect's website:

"This investment option involves profiting from BitConnect trading bot and volatility software. You will receive daily profit based on your investment options. Upon investment term completion, you will receive your capital back to take out from the BitConnect lending platform or optionally reinvest back in lending platform to continue receiving daily profits."

Yet the plaintiffs further allege that, instead of genuinely using the funds for cryptocurrency trading, BitConnect operated as a Ponzi scheme and took funds from additional investors to realize the promise for existing investors.

According to the document, six individuals filed the case on behalf of all investors and account holders who have transferred funds – both cryptocurrencies and fiat – to BitConnect for investment. While it's unclear based on the document how much in assets the whole class put in, the six named individuals said their loss totaled $771,000.

As reported previously, BitConnect's closure came after two cease-and-desist orders from the Texas and North Carolina securities regulators, which subsequently led to a 90 percent plunge in the price of its BitConnect Coin, which is traded on several cryptocurrency exchanges.

At press time, BitConnect had not responded to a CoinDesk email request for comment.

Judge's gavel image via Shutterstock

This article has been updated.


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