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Three token issuers were served a cease and desist order last week after the North Dakota Securities agency held the firms for allegedly offering “unregistered” and “fraudulent” securities as ICOs, as observed in an announcement on Oct.11.
The companies in question are Crystal Token, Advertiza Holdings, and Life Cross Coin. The move was part of Operation Cryptosweep, a broader multi-jurisdiction investigation that cracks down on fraudulent ICOs suspected to deceive investors or operate unregistered, or both.
Launched rather recently in May 2018, Operation Cryptosweep spans 40 U.S. and Canadian states; conducting over 200 ICO investigations and scanning more than 30,000 crypto-related domain names since inception.
As per the statement, Crystal Token (CYL) touts itself as a “revolutionary multi-utility” ERC-20 that guarantees earnings of two percent daily on the initial investment. Court authorities noted the firm’s website fraudulently advertises “excessive unsubstantiated” return on investment for unknowing investors, and is unauthorized to sell securities in North Dakota.
The second offender, Advertiza Holdings, offers TIZA tokens that are advertised as “expect to make a profit” from the appreciation their value. For the regulator, such statements are an immediate red flag as unregistered security, regardless of the Advertiza’s claims of TIZA being a utility token for users on its platform. Besides, the firm falsely claims to be registered with the U.S. Securities and Exchange Commision (SEC), and in reality, is not authorized with either SEC or North Dakota securities.
Lastly, Life Cross Coin is registered at a Berlin I.P. address flagged as malware, ransomware, identity fraud, and issues a token called the LICO. Interestingly, the firm claims to spend all raised funds on charity and pay investors a dividend from returns. The firm is not registered in North Dakota, and its taken-down site reportedly contains tall claims and blatant misrepresentations of its offered products.
North Dakota judge Karen Tyler commented on the orders:
“The continued exploitation of the cryptocurrency ecosystem by financial criminals is a significant threat to Main Street investors. In formulaic fashion, financial criminals are cashing in on the hype and excitement around blockchain, crypto assets, and ICOs – investors should be exceedingly cautious when considering a related investment.”
While the outlawed companies were blatant frauds, the absence of security laws pertaining to cryptocurrencies has left a gaping hole in the nascent market. For companies, while their issued token may be compliant with the law books, regulators have often modulated definitions to hold a company against the books.