Matthew Klomparens

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U.S. Developments

Regulatory Updates

SEC Files Enforcement Action Against Alleged Fraudulent Cryptocurrency Pyramid Scheme

On May 22, the Securities and Exchange Commission (“SEC”) filed a complaint in the U.S. District Court for the Central District of California against Daniel Pacheco, owner of two California-based companies known as IPro Solutions LLC and IPro Network LLC (collectively, “IPro”).  The SEC’s complaint alleges that IPro raised more than $26.5 million in investments via the offer and sale of “IPro packages,” which included instructional materials for e-commerce activities and a recruitment-based compensation plan that paid its members in a cryptocurrency called “PRO Currency.” According to the SEC, IPro’s activities constituted an unlawful unregistered sale of securities because the sale of IPro packages involved an investment in the form of the PRO Currency digital assets, which were not registered and were not eligible for a registration exemption.  The SEC also alleges that the sale of IPro packages involved an investment in a pyramid scheme.  Framed as a multilevel marketing campaign with the goal of developing a blockchain-based e-commerce network, IPro offered recruitment bonuses to its users in the form of points that could be converted into PRO Currency and also offered points and cash commissions to incentivize users to make additional investments in the network.  The SEC alleges that Pacheco and IPro misappropriated more than $5 million in funds, resulting in IPro having insufficient funds to pay commissions and bonuses to its users.
Continue Reading Blockchain Week in Review: Week of May 24, 2019

U.S. Developments

Florida Court of Appeals Rules That Direct Sales of Bitcoin Constituted Money Transmission and the Sale of Payment Instruments

Reversing the order issued by the Miami-Dade County Circuit Court, the Florida Court of Appeals issued an opinion on January 30 in the case of Florida v. Espinoza in which the appellate court ruled that an individual’s sale of bitcoin for cash constituted money transmission and the sale of payment instruments. Largely basing its conclusions on definitional interpretation of the terms “payment instrument” and “money transmitter” under Florida statute, the court of appeals found that the sales of bitcoin involved a “medium of exchange” with “monetary value,” and thus bitcoin fell within the definition of “payment instrument.” The court of appeals relied on similar analysis to conclude that Mr. Espinoza’s sales qualified as money transmission and that, since Mr. Espinoza was not licensed to act as a money services business, he could be charged with engaging in unlawful money transmitter services.
Continue Reading Blockchain Week in Review: Week of February 4-8, 2019