The U.S. Securities and Exchange Commission (SEC) has sued several crypto exchanges and online investment clubs for their alleged role in running an elaborate investment scam that defrauded American victims out of $14 million.
Crypto trading platforms Morocoin Tech, Berge Blockchain Technology, and Cirkor, as well as related investment clubs, including AI Wealth, Lane Wealth, AI Investment Education Foundation, and Zenith Asset Tech Foundation, were charged by the regulator on Monday.
The SEC is seeking injunctive relief, civil penalties, and disgorgement against the defendants.
SEC Files Charges Against Fraudulent Crypto Exchanges and Investment Clubs Involved in a Scheme that Defrauded U.S. Investors of $14 Million
According to a 29-page complaint filed in the U.S. District Court for the District of Colorado, SEC lawyers alleged that the four trading platforms utilized social media platforms and WhatsApp to promote “investment clubs” and lure unsuspecting retail investors.
The regulator noted that many of the advertisements were AI-generated clips featuring prominent financial professionals sharing trading strategies and posting regular commentary on the economy, stocks, and cryptocurrency, creating an impression among victims that market experts were managing their investments.
Investors were allegedly persuaded to open accounts on the associated crypto exchanges that claimed to be licensed by the government and legitimate. The WhatsApp group members were promoted “Security Token Offerings” and nonexistent issuing companies, which the investment club misleadingly likened to initial public offerings of legitimate company shares. When victims attempted to take out their profits, they were told to pay additional fees. However, no withdrawal requests were ever fulfilled by the platforms.
The scammers defrauded victims of $14 million, which was funneled through a complex web of bank accounts and cryptocurrency wallets, with some of the funds being tracked to Chinese or Burmese nationals living in Southeast Asia. The SEC emphasized in its complaint that the money investors transferred to these platforms was never invested as promised; instead, it was misappropriated from the very beginning. Essentially handing over their money to con artists.
One Morocoin investor made seven separate wire transfers that totaled more than $1 million to bank accounts in China and Hong Kong. Another Cirkor investor transferred over $1.4 million to a bank account in Indonesia. Multiple members of the WhatsApp group came out on social media to warn others that the advice offered was fraudulent. At least one person reported losses of $156,000 to their local police department. Meanwhile, other complaints show that several victims who sent thousands of dollars to the scammers had apparently taken out massive loans to invest in the scheme.
‘AI Investment Education,’ one of the accused investment clubs, was registered with the SEC as an investment advisory firm. However, a phone number associated with the firm is currently out of service. The regulator’s suit indicated that the company had no assets under management.
Laura D’Allaird, chief of the SEC’s Cyber and Emerging Technologies Unit, asserted that the case exemplifies a prevalent type of investment scam being used to target U.S. retail investors, which leads to “devastating consequences.” Regulators in the states of Washington and Arkansas also confirmed receiving complaints from several victims who were defrauded by the same companies.
The SEC is seeking injunctive relief, civil penalties, and disgorgement against the defendants. The securities watchdog’s complaint comes as U.S. officials have sought to take more robust action against South Asia-based investment scam operations, which steal approximately $10 million from American investors each year in romance schemes.
U.S Gov Launches Multi-Agency Strike Force to Target Southeast Asia-Based Scam Centers
Last month, the U.S. Treasury Department announced the creation of the multi-agency Scam Center Strike Force to target cyber scam compounds spread across Southeast Asia. The strike force, consisting of agents and lawyers from the Department of Justice (DoJ), Secret Service, State Department, and FBI, will “investigate, disrupt, and prosecute” the most egregious scam centres in the region and their leaders, focusing on Burma, Cambodia, and Laos.
The federal agencies plan to use sanctions, seizures, and criminal prosecutions to target the scam centers, while also providing some form of restitution to victims and educating people on how to avoid scams.
The DoJ said the strike force has already seized and forfeited more than $401.6 million in crypto assets that were part of these schemes, while filing forfeiture proceedings for another $80 million. The Justice Department is poised to work with U.S. social media companies to shut down any accounts used by the scammers and limit the groups’ access to American internet service providers.
