US SEC charges two firms with alleged crypto pump and dump scheme

The United States Securities and Exchange Commission (SEC) has accused two companies, their executives and an alleged international gold trader, of running a fraudulent scheme to boost demand for their digital token.

The false promotion of the token generated more than $36 million in revenue for the defendants, the agency said.

A bogus $10 billion gold bull buyout

According to a lawsuit filed on Friday (September 30, 2022), a Bermudian company called Arbitrade, a Canadian firm Cryptobontix, Troy Hogg, founder and owner of Cryptobontix, James Goldberg, Stephen Braveman, COO of Arbitrade, and Max Barber, a so-called international gold trader operated an alleged pump and dump scheme involving a cryptocurrency called Dignity (DIG) from 2017 to 2019.

According to the SEC’s complaint, Hogg hired Russian developers in 2017 to create Dignity, an Ethereum-based token, which was owned and controlled by Hogg and Cryptobontix. The coin began “trading exclusively” on Livecoin, a Russian crypto trading platform.

Both Arbitrade and Cryptobontix claimed through announcements that the former bought and received $10 billion worth of gold bars from SION, a company owned by Barber, with each of the three billion DIG tokens backed by $1 worth of gold.

The companies also claimed that they had an auditing firm audit the gold as a way to boost investor confidence. However, the SEC alleged that both the gold purchase and the gold audit never happened as they were tactics to get investors to buy DIG tokens.

The DIG Token value dropped to zero

The SEC also alleged that Hog and Goldberg sold DIG on Livecoin at “artificially inflated prices,” resulting in a total profit of $36.8 million. Interestingly, DIG was delisted from the Livecoin platform from February 2020 after the token’s value dropped to zero.

According to the lawsuit, investors participated in what they believed to be an investment opportunity by committing their money using bitcoin or other crypto.

Accordingly, the SEC charges the defendants in the case with “violation of the anti-fraud and securities registration provisions of the federal securities laws.” Furthermore, the supervisory authority’s complaint seeks repayment of ill-gotten gains plus prejudgment interest, permanent injunction and civil monetary penalties.

In addition, the SEC is asking the court to issue an officer and director order for all of the individuals named in the lawsuit.