By Joseph Arshawsky, J.D.
The SEC announced the filing of the first complaint generated by the SEC’s new Cyber Unit, and a court-ordered emergency asset freeze against recidivist Quebec securities law violator, Dominic Lacroix, and his company PlexCorps, to halt an initial coin offering (ICO) fraud that has raised up to $15 million from investors by promising outsized returns on investment, according to a complaint filed in federal court in Brooklyn. The SEC also charged Lacroix’s partner Sabrina Paradis-Royer (SEC v. PlexCorps, December 1, 2017).
The SEC filed an emergency action to stop Lacroix and Paradis-Royer from further misappropriating investor funds illegally raised through fraudulent and unregistered offer and sale of securities called "PlexCoin" or "PlexCoin Tokens" in a purported ICO. From August 2017 through the present, Lacroix and Paradis-Royer obtained funds through materially false and misleading statements made by Lacroix, including promising returns of 1,354 percent in less than 29 days. Lacroix had been enjoined by a Quebec tribunal from engaging in the very conduct that is the subject of this action. The SEC filed a complaint and obtained an emergency freeze.
Illegal securities offering. The ICO for the PlexCoin Tokens was an illegal offering of securities with no registration statement and no applicable exemption from registration. The PlexCoin ICO was a general solicitation through the Internet to investors worldwide, including the United States and Brooklyn, in particular. An ICO is a derivative from the known expression IPO (initial public offering, or stock market launch) which refers to cryptocurrency fundraising. An ICO can allow the financing of a new blockchain, but in most cases, the ICO is set up to issue a token, a coin or to create a Dapp (decentralized application) based on an existing blockchain such as Bitcoin or Ethereum, the blockchain technology for PlexCoin.
Misrepresentations. The stated purpose of the PlexCoin ICO was to obtain "tokenized currency" so that investors could "Take control of [THEIR] money!" The promised returns were to be derived from: (1) appreciation of the value of the PlexCoin Token through investments in PlexCorps from the ICO proceeds and based on the "managerial efforts of PlexCorps’ team of supposed experts"; (2) distribution of profits from the PlexCorps enterprise; and (3) appreciation based on the efforts of PlexCorps’ "market maintenance" team, which included listing the token on digital asset exchanges under the symbol "PXN."
Lacroix and PlexCorps touted other ICOs with returns as high as 88,000 percent. PlexCorps and Lacroix made the following further false and misleading statements: (1) that the PlexCorps’ "team" consisted of a growing cadre of experts around the world, based in Singapore; (2) that the identity of PlexCorps’ executives had to be kept hidden to avoid poaching by competitors and for privacy concerns; (3) that proceeds from the ICO would be used to develop other PlexCorps products; and (4) that investors could expect "enormous" and "real" returns. Instead, Lacroix knew or recklessly disregarded that PlexCorps and PlexCoin Tokens are a scam because: (1) there was no PlexCorps team, other than a handful of Lacroix’s employees in Quebec, and no group of experts; (2) the reason Lacroix was not identified was because he was a known recidivist securities law violator in Canada; (3) Lacroix and Paradis-Royer diverted proceeds from the PlexCoin ICO to their own personal expenses; and (D) there was no reasonable basis to project returns on investments in the scam. Lacroix and Plexcorps violated the securities laws and flaunted the Canadian tribunal’s order.
Violations. Through over 1,500 transactions, investors purchased 81 million PlexCoin Tokens for approximately $15 million. Of that amount, approximately $810,000 was sitting in three accounts at the time of the emergency order. Other amounts were believed to reside in Bitcoin or other blockchain addresses. Paradis-Royer and PlexCorps were charged with violating Securities Act Section 17(a), Exchange Act Section 10(b) and Rule 10b-5, while Lacroix and PlexCorps were charged with violating Securities Act Sections 5(a) and (c). Lacroix and Paradis-Royer were also charged with aiding and abetting certain of PlexCorps’ violations.
Penalties. In addition to seeking the temporary order and asset freeze, the complaint seeks permanent injunctive relief, disgorgement, and civil money penalties. The SEC also seeks an officer-and-director bar against Lacroix and a bar from offering digital securities against Lacroix and Paradis-Royer.
The case is No. CV 17-7007.
Attorneys: Robert A. Cohen, SEC New York Regional Office, for the SEC.
MainStory: TopStory CyberPrivacyFeed Enforcement FraudManipulation InternationalNews SecuritiesOfferings NewYorkNews
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