On June 30, 2017, the SEC and the U.S. Attorney brought parallel civil and criminal fraud charges against Renwick Haddow, the owner of an unregistered broker-dealer entity named In Crowd Equity Inc., and two corporate entities named Bitcoin Store, Inc. and Bar Works, Inc. (SEC Litigation Release, US Attorney Press Release) In addition to filing the civil complaint, the SEC sought and obtained an emergency asset freeze against Haddow, Bitcoin Store, and Bar Works.

According to the SEC, Haddow, a citizen of the United Kingdom living in New York, used an unregistered broker-dealer—In Crowd Equity Inc.—to solicit potential investors to purchase securities of Bitcoin Store and Bar Works. In connection with raising over $37 million, Haddow and other employees of InCrowd allegedly made numerous false statements concerning the companies’ operations and the existence and qualifications of certain senior executives.  For example, according to the SEC’s complaint, Haddow set up Bitcoin Store to be a purported “Bitcoin trading platform.”  The investor materials that were sent to prospective investors claimed that Bitcoin Store had gross sales of over $7 million and that the proceeds from the stock issues would be put toward Bitcoin Store’s working capital and development.  In addition, the investor materials allegedly contained an introductory letter signed by Bitcoin Store’s “Chief Executive, Gordon Phillips.” The materials described Mr. Phillips as a former “Global Head of Currency and Options trading” at HSBC.  They also claimed that he held an MSc in finance from Yale.  In reality, according to the SEC, Mr. Phillips never obtained any degree from Yale, never worked for HSBC, and was a fictitious person.  The SEC also claims that Bitcoin Store had no operations and never generated the gross sales claimed in the offering materials, and was a complete sham.

The SEC alleges that Haddow diverted more than eighty percent of the funds raised for Bitcoin Store and transferred more than $5 million from Bar Works’ bank accounts to accounts in Mauritius and Morocco.

This case demonstrates that the SEC and the Department of Justice are keenly watching companies that raise funds and tout information relating to bitcoin.