Texas Authorities Order Bitconnect to Cease Its Operations in the State
Bitconnect, an online service that presents itself as an open-source community of cryptocurrency users, has recently been hit with regulatory action. This is likely due to the fact that the service also offers various ways to invest and transact in its own cryptocurrency, BCC.
On January 4, the Texas Securities Commissioner went forward with the issuance of an emergency cease and desist order. A press release by the Texas State Securities Board alleges that Bitconnect is engaged in “fraudulent sales” of securities. The Securities Commissioner determined that the investments being sold by the company are considered as securities under Texas legislation, but weren’t properly registered, nor was Bitconnect authorized to sell securities in Texas.
The press release sheds some more details on Bitconnect’s operations. It alleges that the company has a market share of over $4 billion for its cryptocurrency and that the various investment programs offered tell investors that they can achieve annual returns of 100 percent or more. One of them, called the “Bitconnect Lending Program,” claims to be able to generate returns of up to 40 percent per month by using a “Bitconnect Trading Bot.”
The Texas Securities Commissioner stated that despite touting the investments as “safe,” Bitconnect has failed to provide any meaningful information on how the funds will be invested or how the “Trading Bot” actually functions. While Bitconnect is based in England, they don’t provide a physical address for their offices. There’s also no information on their website about the company’s financial condition or its executives.
Investing in cryptocurrencies, even if the program one participates in is fully legitimate and registered with the proper authorities, is seen by experts as being a high-risk activity. The reasons behind the risk include high market price volatility and a large amount of competition from other cryptocurrencies. It’s not uncommon for the price of a cryptocurrency to swing wildly in a single day.
What This Action Means
As Bitconnect is a company based in England, the order given in Texas simply means that the company has to stop doing business with residents of that state. According to other news reports, the actions by regulatory authorities in Texas were likely undertaken after Bitconnect attracted attention by having independent affiliates that promoted the company’s investments in the state.
The company pays these agents commissions whenever they attract new investors. The agents have used ads on social media and platforms like Craigslist to attract potential investors. Prospects were directed to watch presentations that heavily emphasized the high returns offered by Bitconnect, while minimizing any potential risk.
The action taken against Bitconnect should also serve as a reminder that the regulatory environment around cryptocurrencies can get quite complex. The Texas ruling shows that a company dealing in crypto coins can be affected by regional regulations, even if no identical rules exist at the federal level.