The Texas State Securities Board (TSSB) hit another cryptocurrency lending scheme with an emergency cease and desist order, warning the shady company “DavorCoin” to shut down its operations.
The order was signed on February 2. Just a few weeks ago, on January 5, Texas securities regulators hit notorious crypto Ponzi scheme Bitconnect with a cease and desist order. Bitconnect shut down within weeks.
DavorCoin is not as well-known as Bitconnect, but it’s been widely assumed to be a scam for months. The company advertises an identical “lending system” to Bitconnect, including absurdly high guaranteed monthly returns.
The TSSB also recently issued a cease and desist order to a similar project called R2B Coin, making Texas one of the first states to really clamp down on cryptocurrency scams. North Carolina had also previously issued a cease and desist order against Bitconnect.
The Texas State Securities Board (TSSB) issued the emergency cease and desist order because they claim DavorCoin is selling unregistered securities with fraudulent and misleading information to lure investors.
Texas regulators specifically took issue with the ridiculous investment promises of the platform. Here’s how the cease and desist order explained the investment scheme:
“At approximately 5:30 p.m. CST on Jan. 26, 2018, it [DavorCoin] represented that an investor lending $30,000 in DavorCoin who elects a ‘Locking period' of 120 days may earn $513 per day, $3591 per seven days, $15,390 per 30 days and $107,217 as of the ‘capital release day' of August 23, 2018,” the document stated.”
It's not illegal to lend money to other people. However, “lending systems” like Bitconnect and DavorCoin refuse to disclose any proof that they have a real lending system in place. This has led most of the community to assume that it’s a Ponzi scheme, where the returns of older investors are paid by the deposits of newer members until the scheme collapses. However, a few gullible crypto investors have been caught up in scams like DavorCoin.
The TSSB also claims that the project is a form of investment fraud because DavorCoin’s team intentionally hid information about its business, including the founding team and the location of its business. It also refuses to explain how it plans to deliver those returns to investors.
DavorCoin has not issued a statement on the latest cease and desist order. However, they had previously celebrated the Bitconnect shutdown, tweeting on January 16 that,
“this does not change anything for us except that now Davor is the number one lending platform in the world !!”
Texas Regulators Spent One Month Investing Cryptocurrency Scams Undercover
Texas regulators have publicly issued three cease and desist orders against notable cryptocurrency scams to date, including Bitconnect, R2B Coin, and DavorCoin.
Why Texas? Apparently, Texas regulators recently completed a one month undercover investigation of cryptocurrency investment programs. The investigation revealed a number of problems with the way scams like Davorcoin and Bitconnect were being marketed.
“We confirmed our suspicious that they were being marketed toward retirees,” said Joseph Torunda, director of the enforcement division at the Texas State Securities Board, in a statement to CNBC.
“They were not disclosing the information that needs to be disclosed to an investor.”
Texas isn’t the only one issuing alerts against cryptocurrency scams: Florida, North Carolina, Kansas, and Massachusetts have all issued warnings about scams. However, North Carolina is the only other state to issue a cease and desist order against a specific scam (they issued a C&D against Bitconnect just a week after Texas filed the order).
Ultimately, we’ve been calling out scams like Bitconnect and DavorCoin for months. It doesn’t take more than a few minutes of reading about these programs online before you realize they’re scams. Look for further cease and desist orders in the future against similar lending programs.