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Cryptocurrency fundraising 'scam' frozen out by US

Startup PlexCorps is a fraud, the SEC says. It's trying to retrieve $15 million people invested in digital 'PlexCoins.' PlexCorps says it's legit.

The US government has cracked down on a company it says is running a "full-fledged cyber scam," bilking as much as $15 million out of investors excited by the possibilities of the financial and technological revolution known as cryptocurrency.

The US Securities and Exchange Commission filed a lawsuit Friday against a company called PlexCorps, its principal executive Dominic Lacroix and his partner, Sabrina Paradis-Royer to stop them from receiving money from a fund-raising process called an initial coin offering. Its case persuaded a court to freeze the PlexCorps assets as a result, the SEC said Monday.

PlexCorps didn't respond to a request for comment. On Facebook, though, PlexCorps said it's not a fraud and that it's cooperating with Canadian financial authorities and the SEC. 

PlexCorps promises an easy-to-use avenue for people to get involved in the complicated world of cryptocurrencies, but the SEC says its PlexCoin is a "scam."

PlexCorps promises an easy-to-use avenue for people to get involved in the complicated world of cryptocurrencies, but the SEC says its PlexCoin is a "scam."

Screenshot by Stephen Shankland/CNET

Over and over, new technology has enriched not just titans like Bill Gates and Jeff Bezos but also ordinary folks who bought in at the right time. Google stock today is worth 20 times the $50 per share it sold for in 2004. But just because new tech generates new wealth doesn't mean that every new idea means easy money.

PlexCorps and Lacroix had promised a 1,354 percent profit in just 29 days to those who participated in a process called an initial coin offering (ICO) -- a sale of the digital assets central to the cryptocurrency technology. But according to the lawsuit -- the first from the SEC's new Cyber Unit -- "PlexCorps and the PlexCoin Token are a scam."

Why? Among other things, the lawsuit said, "Lacroix was a known recidivist securities law violator in Canada; the proceeds from the PlexCoin ICO were not destined for business development but instead were intended to fund Lacroix and Paradis-Royer's expenses including home decor projects; and there was no reasonable basis to project returns on investment."

In its statement, PlexCorps denied wrongdoing: "We are being depicted as robbers, scammers and fraudsters everywhere in the media. They are smearing our name with some allegations that can sometimes be false or misleading ... All PlexCoin purchased were distributed and we are now listed on many cryptocurrency exchanges. We claim that PlexCoin is not a fraud since no one had their money stolen from us and ... all purchased PlexCoin were distributed."

PlexCorps didn't address specific SEC allegations, for example that it didn't really have a large team of experts or that the PlexCoin iCO was an "illegal offering of securities" lacking required paperwork called a registration statement. However, it promised a news release about the matter "in the next few days."

Hundreds of companies are trying to cash in on cryptocurrencies -- no surprise given the real promise of the technology combined with the stunning rise in value of the best-known cryptocurrency, bitcoin. A newer alternative, Ethereum, promises even more sophisticated technology and has been surging in value as well.

The PlexCorps website shows various cryptocurrency-based services, but the US SEC says the company is a fraud.

Screenshot by Stephen Shankland/CNET

Cryptocurrencies often have a dual nature. They can serve as a currency, something that can be exchanged for goods and services. And they can be considered an investment, something that will appreciate in value. In the case of PlexCoin, PlexCorps was treating it as this latter category. As such, laws governing the sales of securities apply, the SEC said.

"We acted quickly to protect retail investors from this initial coin offering's false promises," Robert Cohen, chief of the SEC's Cyber Unit, said in a statement.

The SEC also warned in November that celebrities are potentially liable for any misconduct touting initial coin offerings. Boxer Floyd Mayweather and socialite Paris Hilton both promoted cryptocurrencies. "I'm gonna make a $hit t$n of money on August 26th," Mayweather said on his Instagram account in July.

The SEC's new lawsuit seeks to get PlexCorps, Lacroix and Paradis-Royer to "disgorge their ill-gotten gains" along with interest, bar them from ICOs and pay a fine.

The Quebec Autorité Des Marchés Financiers in Canada also cracked down on PlexCorps in July. The cases reveal just how important digital information has become. According to the SEC's lawsuit:

  • A person posting on the French site called CryptoFR traced posts from a user called PlexCoin to Lacroix by his computer's internet address;
  • Authorities cited text messages from Lacroix and Paradis-Royer to show their involvement;
  • After Paypal flagged purchases to buy PlexCoin as suspicious and reversed most of them, Lacroix and Paradis-Royer lied to Shopify to open a new payment processing system, saying they were selling online gaming content;
  • Using Microsoft's Skype messaging technology, Lacroix discussed the use of a third payment processor, Stripe.

The assets were frozen before Monday, the day when a 90-day Stripe administrative hold was set to expire and about $810,000 was to be transferred to the defendants, the lawsuit said.

First published Dec. 4, 6:16 p.m. PT.
Update, Dec. 5 at 10:01 a.m.: Adds PlexCorps comment from its Facebook statement.