California’s Department of Financial Protection and Innovation, or DFPI, announced Tuesday that it had issued cease and desist orders against 11 entities for violating California’s securities laws.
Each entity “allegedly offered and sold ineligible securities, and 10 of them also made material misrepresentations and omissions to investors,” according to a DFPI press release. Of the 11 entities, one developed metaverse software by applying for cryptoassets, and another claimed to be a decentralized finance platform, the DFPI said. The remaining entities, which include names such as Elevate Pass LLC, Pegasus and Remabit, allegedly misled investors. Vexam Ltd and Elevate Pass LLC did not respond to requests for comment. The other entities could not be reached for comment.
All the entities were alleged to have used a Ponzi-like scheme in which they used investor funds to pay “profits” to other investors. The entities also had referral programs that operated as a pyramid scheme, authorities said, in which investors were promised commissions if they recruited new investors, and additional commissions if the investors recruited also recruited new investors. The programs worked to motivate investors to create and post content on social media sites to entice others to invest, a DFPI press release said.
All the units were examples of “high yield investment programs” where they promised high and consistent returns with low risk. They also used vague language to describe how the HYIP makes money and who the money goes to, with little detail about who runs the HYIP, the department said.
“DFPI will continue to protect California consumers and investors from crypto fraud and scams,” DFPI Commissioner Clothilde Hewlett said in a statement. “These actions not only protect consumers, but also ensure that California remains the premier global place for responsible crypto-asset companies to start and grow.”
Greater effort
In recent years, the crypto market has faced increasing scrutiny from regulators and policy makers. In August, the US Securities and Exchange Commission charged 11 people in a $300 million crypto pyramid scheme. Earlier this year, the SEC announced an expansion of the team responsible for protecting investors in crypto markets and against crypto-related threats.
In mid-September, the Biden administration said that US government agencies must redouble enforcement of the digital asset sector to identify gaps in cryptocurrency regulation. Earlier this year, President Joe Biden signed an order to ensure the responsible development of digital assets.
While cryptocurrencies reached a market cap of $3 trillion last fall, the sector has slumped in recent months as investors pulled out of risky investments due to rising interest rates.
Brian Deese, the director of the National Economic Council, said on September 16 that cryptocurrencies could harm national security without adequate oversight.
“Regulation of cryptocurrencies is necessary if digital assets are to play the role we believe they can in fostering innovation and supporting our economic and technological competitiveness,” he said.
