BitConnect Shuts Down After TSSB Order

BitConnect is closing down its operations. The company got a cease and decease order from TSSB. Additionally, BitConnect was the target of DDoS attacks, which have made the situation worse. BitConnect got the cease and desist order from the TSSB in early January 2018 for operating a Ponzi scheme. Soon after the announcement, BCC, BitConnect’s coin, plunged from $290 USD to below $10 USD. BitConnect’s official blog post just confirmed that “These actions have become a hindrance for the legal continuation of the platform.”

Scams & Ponzi Schemes

This is not the first time a that a company in the space gets into trouble with the authorities, although in BitConnect’s case, it seems that allegations against it are well founded. The platform came under the scrutiny of the TSSB – Texas State Securities Board – because the firm offered 120% return rates per year. Such promises are common in scams and Ponzi schemes. Even prominent people within the cryptocurrency space such as Vitalik Buterin and Crytocurrency investor Michael Novogratz have come out warning against BitConnect.

“Bitconnect seems like a scam. An old-school ponz.. bad actors hurt the community. It had managed to become one name among top-20 most successful crypto assets.”

BitConnect Scam Behind the Scenes

Bitconnect never revealed its actual source of profit, which made its scheme look like a pyramid. Its “Intelligent trading bot” seems to be a lie as well; there is no evidence that it is real. However, before winding down, Bitconnect had alerted its users to withdraw their BCC balances to QT wallets. The post describes that the lending and exchange platform will not be available. Nonetheless, users can still access its wallet services, news, and articles. Bitconnect owns a massive promotional kit of affiliates and promoters on social media including YouTube. BitConnect also had prominent social media supporters. Despite the halt, the platform acknowledges that their users can still access their BCC coin, which is still listed on other exchanges.

“In short, we are closing lending service and exchange service while BitConnect.co website will operate for wallet service, news and educational purposes.”

What Triggered Texas Regulators? 

According to the release, the firm placed 9.4million tokens worth of $4.1billion as of January 3 on the marketplace. BitConnect claimed it would issue a maximum of 28 million coins. Bitconnect accepts Bitcoin to run its various programs like BCC lending program and BitConnect Coin. These investments are securities but BitConnect did not register under Texas Securities Act and State Securities Board Rules and Regulations. This triggered a reaction from Texas regulators.

As a result, Bitconnect is also facing fraud charges on several other activities including inappropriate physical address, assets, liabilities and actual risk associated with such securities. Nevertheless, Bitconnect continues to promote itself as a “safe way to earn a high rate of return”. A statement from regulators detils Bitconnect’s negligence for its failure to provide information on how investors make money along with the algorithms behind its Trading Bot. BCC’s agents or affiliates selling securities in Texas are not registered. These sales agents were “targeting Texas residents,” and folks of other states through several online channels.

BitConnect’s Legal Recourse

Following the announcement, Bitconnect can “request administrative hearings” for thirty days from the date of order. However, if it fails to request a hearing, the order becomes final and non-appealable. Bitconnect will likely be indicted with a criminal offense if it refuses to comply with the terms of the order. It doesn’t seem that this company has a legal recourse to prevent further action from authorities. In the meantime, those who hold BCC and those who invested in the platform have paid the price. This is another painful example of how bad actors can enter the space and take advantage of people’s desire to profit. Hopefully, this will teach people to do their due diligence before investing.