As many have done before a new Ponzi scheme has popped up back in 2016 with the name of BitConnect which defrauded many investors by persuading them into lending them their Bitcoins with the promise of huge profits by use of automated trade bots. Like any Ponzi scheme before, the money that came in was used to pay off old investors. The total amount lost to the operators was north of $2 billion dollars.
To achieve a wide network of investors to trick into giving them their investments, Bitconnect utilized influencers to advertise them in their content. Naturally, some investors filed a class-action lawsuit in 2018, against not only BitConnect but also the influencers that promoted them. Investors argued that these promoters can be held liable under a violation of the 1933 Securities Act.
BitConnect promoter held liable
Self-proclaimed number one promoter of Bitconnect, Glenn Arcaro, has pleaded guilty to the charges but since has argued successfully to dismiss the case in district court. After the dismissal of the case, investors appealed and a ruling was made in their favor to proceed against Arcaro.
Thanks to the pdf provided by @stephendpalley on Twitter, the opinion of the court for the appeal can be read. Judge Grant wrote that:
“A new means of solicitation is not any less of a solicitation. So when the promoters urged people to buy BitConnect coins in online videos, they still solicited the purchases that followed.”
11th Circuit Court of Appeals reverses trial court decision in Bitconnect case and holds that peddling shitcoins in a non-targeted way on the interwebs (YouTube, Twitter etc) exposes promoters to liability from purchasers of unregistered securities. pic.twitter.com/Oh7BA4GGo2
— Palley (@stephendpalley) February 18, 2022
This sets a precedent that influencers promoting such schemes on online platforms can be held liable. Attorney to the plaintiffs, David Silver also tweeted after the ruling that promoting fraudulent invesment scams on social media will result in the promoter being held liable.
https://twitter.com/dcsilver/status/1494754047340990465
Silver gave a statement to The Verge saying that:
“The appellate court today confirmed what so many of the BitConnect promoters themselves have conceded in their guilty pleas to the criminal charges brought against them: the BitConnect investment program is a fraud, and soliciting investors through social media channels does not exempt that fraud from the federal securities laws.”
This development is a warning to all influencers and online content creators that advertising a product or a service might cause more harm than good, if they are not careful about what they are promoting such as BitConnect.
