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Indiana joins nationwide effort to crack down on cryptocurrency fraud

May 23, 2018

Indiana has joined a national operation to crackdown on fraudulent cryptocurrency transactions and investments, state officials announced Tuesday.

The effort, dubbed “Operation Cryptosweep,” is being coordinated by the North American Securities Administrators Association. It has resulted in nearly 70 inquiries and investigations and 35 pending or completed enforcement actions since the beginning of May.

In Indiana, the Secretary of State’s Office targeted a company offering a cryptocurrency known as Bionic for providing misleading information in an initial coin offering, and packaging the ICO in a way that made it a security, even though it was not properly registered as such with the state.

The cease-and-desist letter that Indiana Securities Commissioner Alex Glass issued May 1 says Bionic failed to disclose financial information, identify pertinent principal information, disclose a physical location, disclose the basis for partnerships with big companies like Google and Apple, and disclose the risks associated with not becoming listed on cryptocurrency exchanges.

The IP address for Bionic’s website originates in Los Angeles, but no physical address is provided for the company. And a listing of team members only provides last names and first name initials.

The letter also notes that “the terms and conditions placed on the website state that any dispute arising from the use of the website shall be governed by the laws of Belize.”

The state says Bionic violated the Indiana Uniform Securities Act because the initial coin offering met the definition of an investment contract, which is considered “an investment in a common enterprise with the expectations of profits derived from the efforts of a person other than the investor.”

It’s the only action taken by the state so far, but the Secretary of State’s Office is still reviewing other websites to determine if more action will be taken.

“The actions announced today are just the tip of the iceberg,” Glass said in a written statement.

The task force formed by the NASAA in April has found about 30,000 crypto-related domain name registrations, and most appeared in 2017 or 2018.

One of the main goals for the task force is to educate the public on the risks associated with initial coin offerings and cryptocurrency-related investment products.

Cryptocurrency itself is not a security, but when it is packaged as a security product, it must registered with  the Secretary of State’s Office, officials said. Registered securities includes the full prospectus, offering materials and information an investor needs to make an informed decision.

“Not every ICO or cryptocurrency-related investment is fraudulent, but we urge investors to approach any initial coin offering or cryptocurrency-related investment product with extreme caution,” Glass said.

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