The Intersection of Cryptocurrency and Ponzi Schemes

The New York Attorney General recently filed a lawsuit against Nova Tech, Ltd. and AWS Mining PTY Ltd., two cryptocurrency companies. The lawsuit also extends to their founders and promoters.

The lawsuit claims that the companies operated illegal pyramid and Ponzi schemes. This scheme was with the intent to defraud. 

According to the lawsuit, Nova Tech Ltd and AWS Mining PTY Ltd defrauded investors of over a billion dollars in cryptocurrency. This act violates two laws: the Martins Act and the New York Executive Law. 

This article aims to draw the thin line between cryptocurrency trading and Ponzi schemes: 

What the Complaint Is About

In the complaint, the AGS claimed that the two companies were involved in a pyramid and Ponzi scheme. Immigrants were the target of these schemes. The companies penetrated immigrant communities by making false promises.

Their promise was a high return on investment to all investors. However, this was a pyramid scheme, a ploy to play on unsuspecting people. 

The companies’ strategy was simple: They paid older investors funds from newer investors and falsely claimed to make profits via cryptocurrency trading.

Furthermore, in the AG’s complaint, the two companies offered and sold securities without due registration. In the US, and by extension, the state of New York, it is illegal to offer and trade securities without registering with the appropriate agencies under state laws.

What the Lawsuit Seeks to Achieve

The lawsuit seeks four forms of relief: injunctive relief, restitution, disgorgement, and civil damages.

Injunctive Relief 

Injunctive relief is a court action that restrains a party from carrying out specific actions. It may also be used to prevent the party from acting in a certain way. 

Restitution 

Restitution occurs when a judge directs a victim to compensate them as compensation for their loss. It also includes the process of restoring a victim’s property. “When damages are insufficient to compensate the victim for their loss, the court will usually order restitution,” says attorney Scott Silver of Securities Fraud Attorneys.

Disgorgement

Disgorgement occurs when a guilty party relinquishes something in their possession. Typically, a court order is required to compel the party to do so. Disgorgement is usually applied to profits obtained via illegal means. 

Before disgorgement, the entire value of the illegally obtained profit/property is calculated, and a court injunction for freezing the guilty party’s assets is ordered. Then, the assets are awarded a monetary value and adequately transferred to the original owner.

Civil Damages

A court may rule for monetary damages in Ponzi scheme cases. Civil damages are the act of awarding monetary compensation to a victim. The guilty party is compelled to pay compensation for damages caused to the victim’s health, income, and assets.

For the court to award civil damages, the plaintiff must prove that the defendant’s actions and negligence caused the plaintiff’s injury and loss. 

Other Lawsuits the AG Has Filed

The recent lawsuit against Nova Tech and AWS is one of the numerous lawsuits the AG has filed in recent years. It is part of the AG’s effort to stamp out fraudulent activities and protect investors.

It is also a move to regulate the cryptocurrency sector. Some of the other AG’s lawsuits include:

1. A lawsuit against Genesis Global, LLC. This lawsuit resulted in a $2 billion settlement 
2. A lawsuit against KuCoin, which resulted in a $22 million settlement
3. A lawsuit against Coin café Inc., which resulted in a $4.3 million settlement

Final Words

Regulating the cryptocurrency industry is becoming more important by the day. The cryptocurrency market is large and has numerous investors, so protecting their investments is paramount.

Failure to regulate gives Ponzi schemes opportunities to easily defraud investors. Engaging an attorney if Ponzi scheme companies masquerading as cryptocurrency companies have defrauded you is also advisable.

Many of them hide under the guise of legitimate business to defraud unsuspecting investors of their hard-earned money. That is why you must also allow a financial advisor to enlighten you before committing yourself to any scheme.