California Launches Crackdown on 11 Crypto Firms Accused of Operating Ponzi Schemes

The California Department of Financial Protection and Innovation (DFPI) has cracked down on 11 cryptocurrency companies that are accused of violating California securities laws. Nine of the firms reportedly solicited funds from investors in order to trade cryptocurrencies on the customer’s behalf. One of the accused companies pitched an alleged metaverse software development scheme, and another firm claimed to be a “decentralized finance (defi) platform.”

11 Crypto Firms Targeted by California’s Department of Financial Protection and Innovation

California’s financial regulator the DFPI has been targeting crypto asset companies and on Tuesday, the financial watchdog launched a “crackdown” against close to a dozen digital currency-centric entities. The DFPI “issued desist and refrain orders against 11 different entities for violations of California securities laws,” the regulator said on September 27. The state’s regulator further noted that the operations are accused of running a pyramid or Ponzi scheme.

“The entities are all alleged to have used investor funds to pay purported profits to other investors, in the manner of a Ponzi scheme,” the DFPI’s press release notes. “Furthermore, each of the entities had a referral program that operated in the manner of a pyramid scheme. The entities promised to pay investors commissions if they recruited new investors, and additional commissions if the investors that they recruited, in turn, recruited new investors.”

The DFPI’s crackdown follows the cease and desist order it sent to the crypto lender Nexo on Monday. Nexo is accused of offering and selling “unqualified securities, in the form of Earn Interest Product accounts,” since “at least June 2020,” the regulator’s complaint details. The 11 desist and refrain orders issued on Tuesday detail that the entities allegedly offered “classic examples of high yield investment programs (HYIPs).” The 11 crypto companies named in the desist and refrain orders include:

• Cryptos OTC Trading Platform Limited d/b/a COTP
• Elevate Pass LLC
• Greencorp Investment LLC
• Metafiyielders Pty Ltd d/b/a Metafi Yielders
• Pegasus
• Polinur ME Limited
• Remabit
• Sity Trade
• Sytrex Trade
• Vexam Limited
• World Over the Counter Limited d/b/a World OTC

During the announcement on Tuesday, DFPI commissioner Clothilde Hewlett commented on the actions that took place against the crypto firms accused of Ponzi-like operations. “The DFPI will continue to protect California consumers and investors from crypto scams and frauds,” Hewlett remarked. “These actions not only protect consumers, but also ensure California remains the premier global location for responsible crypto asset companies to start and grow,” the commissioner added.