On behalf of Mihalek Law posted in Securities Law on Tuesday, September 22, 2015.
It was likely not the best birthday he’s ever had, but perhaps the one with the most fitting gift. A man recently pleaded guilty to securities fraud on his 33rd birthday, telling a U.S. Magistrate that he knew that what he had done was illegal and that he was “very sorry.”
We don’t know if any Lexington residents invested in the scheme or not, but we do know that federal officials are calling it the first bitcoin securities fraud case. Observers have said the Texas man’s scam has classic elements of a Ponzi scheme in which initial investors are paid with some of the revenue generated by later investors.
To those who entrusted him with their digital currency bitcoins, he apparently promised quick wealth, including gains of up to 1 percent per day. Authorities said in a news report that at one point, the man’s Bitcoin Savings and Trust held 7 percent of all bitcoins in circulation.
A press release from a U.S. Attorney said the 2011-2012 operation “yielded high returns for (the defendant) rather than his investors.”
Like traditional securities fraud, this first-ever bitcoin case involved theft of funds, omission of material facts and misrepresentations of the investments. In this particular instance, a civil judgment requires the man to pay upwards of $40 million in disgorgement (his ill-gotten gains), plus interest, as well as a penalty of $150,000.
As the world of finance is altered by technology, so too are criminal schemes to separate good people from their hard-earned money. A Central Kentucky attorney who understands the law as well as technologies used to circumvent it can help victims of securities fraud pursue justice in arbitration hearings and in litigation.