California Regulator Targets 11 Crypto Trading Desks Operating Like 'Ponzis'

California's financial regulator brought enforcement actions against 11 little-known crypto companies Tuesday, alleging they stole customer funds or operated like Ponzi schemes.

AccessTimeIconSep 27, 2022 at 7:25 p.m. UTC
Updated May 11, 2023 at 6:13 p.m. UTC

The California Department of Financial Protection and Innovation (DFPI) filed cease-and-desist orders against 11 little-known crypto firms Tuesday, alleging they were misappropriating customer funds or violating state securities laws.

The regulator went so far as to cast doubt that the companies, which included firms Elevate Pass LLC and Metafi Yielders, were actually offering the services they claimed.

"Each of the 11 entities allegedly offered and sold unqualified securities and 10 of them also made material misrepresentations and omissions to investors," the regulator said in a press release.

Previous schemes targeting possible investors have offered high-yield investment products in other sectors like oil and gas, the regulator said.

"The entities are all alleged to have used investor funds to pay purported profits to other investors, in the manner of a Ponzi scheme. Furthermore, each of the entities had a referral program that operated in the manner of a pyramid scheme," the press release said. "The entities promised to pay investors commissions if they recruited new investors, and additional commissions if the investors that they recruited, in turn, recruited new investors. The referral programs achieved their desired effect, incentivizing investors to create and post content to social media websites, such as YouTube, to entice others to invest in these entities."

The enforcement actions come a day after California joined a group of states in suing crypto lender Nexo, alleging its Earn product was violating securities laws.

Disclosure

Please note that our privacy policy, terms of use, cookies, and do not sell my personal information has been updated.

CoinDesk is an award-winning media outlet that covers the cryptocurrency industry. Its journalists abide by a strict set of editorial policies. In November 2023, CoinDesk was acquired by the Bullish group, owner of Bullish, a regulated, digital assets exchange. The Bullish group is majority-owned by Block.one; both companies have interests in a variety of blockchain and digital asset businesses and significant holdings of digital assets, including bitcoin. CoinDesk operates as an independent subsidiary with an editorial committee to protect journalistic independence. CoinDesk employees, including journalists, may receive options in the Bullish group as part of their compensation.

Nikhilesh De

Nikhilesh De is CoinDesk's managing editor for global policy and regulation. He owns marginal amounts of bitcoin and ether.