Banks are subject to rules which require them to verify the identity of their customers. This is a problem for criminals who have large sums of cash from illegal activities. Increasingly, criminals have turned to cryptocurrency to launder their cash.
Chainalysis, a New-York based blockchain analysis company, reports that in 2019 criminal entities moved $2.8 billion in Bitcoin to exchanges where the bitcoin is converted back into cash.1
That figure jumped exponentially from the $1 billion that Chainalysis reported as being converted in 2018.According to a Securities and Exchange Commission (SEC) complaint Nevada-based NAC Foundation fraudulently assured investors that AML BitCoin was “superior to the original bitcoin, with anti-money laundering, anti-terrorism, and theft-resistant technology built into the coin on NAC’s own ‘privately regulated public blockchain’.”2
NAC Foundation and Marcus Andrade, its chief executive officer, along with a political lobbyist, Jack Abramoff, were charged in the SEC complaint. The SEC alleges in the complaint that from at least August 2017 through December 2018, the Foundation garnered $5.6 million from 2,400 investors, primarily in the United States, through the sale of tokens that could later be converted to AML Bitcoin.3
While investors were told that AML BitCoin was superior to the original bitcoin because of its safeguards and technology advances, the SEC alleged that none of the anti-money laundering, anti-terrorism and theft-resistant capabilities existed and “the development of AML BitCoin and its blockchain was in the very early stages.”4
The SEC DAO Report, issued July 25, 2017, advised those using blockchain-enabled means for capital raising to take appropriate steps to ensure compliance with U.S. federal securities laws warning that digital assets were investment contracts and therefore securities.5 These securities laws include full and fair disclosure which requires those offering and selling securities to the investing public to provide “sufficient, accurate information to allow investors to make informed decisions before they invest.”6
The SEC believes that the tokens that NAC sold to its investors, including through an initial coin offering (ICO) phase offered to the general public, were an investment contract, which constituted a “security” under federal securities laws. NAC never filed a registration statement with the SEC for its offer and sale of securities and did not receive an exemption from registration, thus depriving its investors of important information about the investment opportunity and why it was speculative and risky.
The SEC also alleges that NAC and Andrade deceived investors by telling them through social medial posts, press releases and other promotional materials that government agencies were interested in using AML BitCoin in their payment systems. Only initial meetings were held, with no follow-up meetings. The also deceived investors by falsely suggesting that the National Football League and NBC rejected an AML BitCoin ad because of its political content when in fact, NAC did not have the funds to run a Super Bowl commercial. Approximately $1.1 million from AML BitCoin sales was allegedly used by Andrade to purchase a personal residence and vehicles as well as a property for his father.
Investors considering initial coin offerings and digital asset purchases should gain knowledge on these types of investments by visiting the Investor.gov website.7
The Law Offices of Peter C. Rageas has been helping victims of Investment and Securities Fraud recover financial losses for over 20 years. We Are a Full-Service Securities Law Firm handling all aspects of Investment & Securities Fraud.
If you feel that you may have been a victim of securities fraud, or broker negligence please contact our Investment Fraud and Securities Fraud Law Offices serving the Greater Detroit Area and beyond. We offer consultations and are happy to talk to you about your unique case today!
1 Criminals Laundered $2.8 Billion in 2019 Using Crypto Exchanges, Finds a New Analysis, MIT Technology Review, 1/16/2020
2,4 SEC Charges Issuer, CEO, and Lobbyist with Defrauding Investors in AML BitCoin, www.sec.gove, 6/25/2020
3,5,6 U.S. Securities and Exchange Commission Complaint
7 Spotlight on Initial Coin Offerings and Digital Assets