NEWARK – Attorney General Gurbir S. Grewal and the Division of Consumer Affairs announced that the Bureau of Securities (“the Bureau”) today issued two emergency orders to stop online cryptocurrency-related investment entities from fraudulently offering unregistered securities in New Jersey.
The Cease and Desist Orders against Zoptax LLC a/k/a Zoptax and Unocall were announced today as part of “Operation Cryptosweep,” an international crackdown on fraudulent Initial Coin Offerings (“ICOs”) and crypto currency-related investment schemes.
State and provincial securities regulators in the United States and Canada are participating in the sweep, which is being coordinated by the North American Securities Administrators Association (NASAA), of which the Bureau is a member. N.J. Bureau of Securities Chief Christopher W. Gerold serves as NASAA’s President-Elect.
“Today’s action demonstrates that our Bureau of Securities stands ready to enforce our investor protection laws in cases involving initial coin offerings and cryptocurrency-related investment schemes,” said Attorney General Grewal. “As innovation in the online cryptocurrency-related investment market continues, market players need to understand that the rules still apply to them.”
In April 2018, NASAA organized a task force of its member state and provincial securities regulators to begin a coordinated series of investigations into initial coin offerings (ICOs) and other cryptocurrency-related investment products. Since January 2019, this coordinated regulatory focus has resulted in more than 130 new investigations of Initial Coin Offerings (ICOs) and cryptocurrency-related investment products have been initiated and 35 enforcement actions completed. Since inception, Operation Cryptosweep has resulted in at least 85 pending or completed enforcement actions involving ICOs or cryptocurrency-related investment products and approximately 330 inquiries or investigations by securities regulators from U.S. states and Canadian provinces.
To date, the Bureau has issued eight crypto-related enforcement actions, including the two actions today. Most recently, in July 2019, the Bureau filed a lawsuit against Pocketinns, Inc., a Princeton-based blockchain-driven online rental marketplace, and its president Sarvajnya G. Mada, alleging that they offered and sold more than $400,000 of unregistered securities from New Jersey in the form of a cryptocurrency.
“The Bureau’s actions today, and the actions taken by other securities regulators during ‘Operation Cryptosweep,’ are a reminder to investors that while not every initial coin offering or cryptocurrency-related investment is fraudulent, there are significant risks involved with these products,” said Paul R. Rodríguez, Acting Director of the Division of Consumer Affairs. “Investors must be on alert and not be tempted to invest in cryptocurrency-related investments without first vigorously vetting any transaction.”
The Bureau found that Zoptax is offering investors unregistered securities through its website in the form of an ICO of its cryptocurrency referred to as “Zoptax Coins.” According to the Zoptax Websites, Zoptax is conducting an ICO with a $500,000 (soft cap), and an ideal financing amount of $3.4 million (hard cap). The Zoptax securities were not registered with the Bureau to be sold in New Jersey, nor exempt from registration. The Bureau found that Zoptax further violated the law by making materially false and misleading statements and/or omitting to state material facts in connection with the offer and sale of its securities, including how the funds raised in the ICO will be used, information relating to the persons or entities that developed Zoptax, and its physical address and principal place of business.
The Bureau found that Unocall is offering investors unregistered securities through its website in the form of an ICO of its Unocall tokens and it its offer of investments in its “Staking Program.” Unocall is purportedly offering the tokens to raise capital to build an ecosystem that will purportedly offer users the opportunity to purchase and trade Unocall tokens, altcoins and fiat currencies through their UNOpay Mobile Wallet. In addition to the Unocall ICO, the Unocall Websites offer potential investors in New Jersey the opportunity to earn guaranteed interest of “0.18% - 0.88%” per day, through its Staking Program. The Unocall securities were not registered with the Bureau to be sold in New Jersey, nor exempt from registration. The Bureau found that Unocall further violated the law by making materially false and misleading statements and/or omitting to state material facts in connection with the offer and sale of its securities, including the identify of its principals, its physical address and its principal place of business, and the person or entities that developed Unocall.
“With the price of Bitcoin increasing over the last few months and the announcement of Facebook’s Libra, there has been a sharp increase in public solicitations to invest in crypto-related products that appear on their face to be suspect,” said Bureau Chief Gerold. “The two actions today are a reminder to investors that investing in cryptocurrencies or crypto-related products have significant risks and investors must do their diligence before investing.”
To help raise investor awareness, Chief Gerold today announced a new video in the “Get in the Know” series produced by NASAA, featuring common crypto investment schemes and how to guard against becoming a victim. The video is available on NASAA’s website www.nasaa.org (watch here). The animated video also outlines the common concerns investors should consider before investing in any offering containing cryptocurrency, including:
- Volatility: Cryptocurrency markets are highly volatile, making them unsuitable for most investors looking to meet long-term savings or retirement goals.
- No recourse: Cryptocurrency and many crypto-related investments are subject to little regulatory oversight, and there may be no recourse should the cryptocurrency disappear due to fraud or a cybersecurity breach.
- Untraceable: Cryptocurrency or crypto-related investments only exist on the internet. Issuers can be located anywhere in the world, so it may be impossible to trace and recover lost funds through the courts.
The Bureau’s investigation was handled by Deputy Chief Amy Kopleton and Supervising Investigator John Seuberth of the Bureau of Securities, within the Division of Consumer Affairs.
The Bureau is charged with protecting investors from investment fraud and regulating the securities industry in New Jersey. It is critical that investors “Check Before You Invest.” Investors can obtain information, including the registration status and disciplinary history, of any financial professional doing business to or from New Jersey, by contacting the Bureau toll-free within New Jersey at 1-866-I-Invest (1-866-446-8378) or from outside New Jersey at (973) 504-3600, or by visiting the Bureau’s website at www.NJSecurities.gov. Investors can also contact the Bureau for assistance, or to raise issues or complaints about New Jersey-based financial professionals or investments.