The Securities and Exchange Commission recently announced settled charges with Bitqyck Inc. and its founders, who allegedly defrauded investors in a $13M ICO fraud. The victims bought the unregistered ICO Bitqy and BitqyM, which operated under an unregistered exchange.
According to the SEC’s complaint, Bitqyck and founders Bruce Bise and Sam Mendez created and sold Bitqy and BitqyM in unregistered securities offerings to more than 13,000 investors, raising more than $13 million.
Investors allegedly received $4.5 million for referring new investors to Bitqyck but collectively lost more than two-thirds of their investment in the Dallas-based company. This type of referral system appears to be similar to the Shipchain ICO, which sold over $30 million of its digital token Shipcoin through promoters such as Shark Tank’s Kevin Harrington, whom may have received undisclosed bounties. The Shipcoin value is now down $28.5M, causing investors to take to the internet to lament of lost money. The Co-Founder and Chief Compliance Officer of Shipchain, Aaron Kelly, is an attorney that is on probation with the Arizona Bar for alleged fraud and others on the payroll such as Shaun Groomes are long-time friends with the founder, John Monarch.
The SEC’s complaint alleges that Bise and Mendez misrepresented QyckDeals, a daily deals platform using Bitqy, as a global online marketplace, and falsely claimed that each Bitqy token provided fractional shares of Bitqyck stock through a “smart contract.”
The complaint alleges that the defendants falsely told investors that BitqyM tokens provided an interest in a Bitqyck cryptocurrency mining facility powered by below-market rate electricity. In reality, Bitqyck did not have access to discounted electricity and didn’t own any mining facility. Bitqyck, aided and abetted by its founders, also is alleged to have illegally operated TradeBQ, an unregistered national security exchange offering trading in a single security, Bitqy.
“Because digital investment assets represent a new and exciting technology, they can be very alluring, especially if investors believe they are getting in on the ground floor and will own part of the operations,” said David Peavler, Director of the SEC’s Fort Worth Regional Office. “We allege that the defendants took advantage of investors’ appetite for these investments and fraudulently raised millions of dollars by lying about their business.”
The SEC’s complaint, filed in U.S. District Court for the Northern District of Texas, seeks permanent injunctions, return of allegedly ill-gotten gains with interest, and civil money penalties. Without admitting or denying the allegations, Bitqyck, Bise and Mendez consented to final judgments agreeing to all the injunctive relief. Bitqyck also consented to an order requiring that it pay disgorgement, prejudgment interest and a civil penalty of $8,375,617. Bise and Mendez consented to the entry of an order that they each pay disgorgement, prejudgment interest and a civil penalty of $890,254 and $850,022, respectively.
The SEC’s investigation was conducted by David Hirsch, Melvin Warren, and Carol Hahn with litigation support from Keefe Bernstein, and supervised by Scott F. Mascianica and Eric R. Werner of the SEC’s Fort Worth Regional Office. The SEC appreciates the assistance of the Texas State Securities Board, and the State of Hawaii Office of the Securities Commissioner.