Securities Regulation Daily Texas cracks down on another offshore cryptocurrency offering
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Friday, January 26, 2018

Texas cracks down on another offshore cryptocurrency offering

By John M. Jascob, J.D., LL.M.

The Texas Securities Commissioner has issued an emergency cease-and-desist order to bar Hong Kong-based R2B Coin from offering interests tied to the firm’s eponymous cryptocurrency. The commissioner alleges that R2B Coin has fraudulently offered unregistered securities to Texas residents by, among other things, representing that the cryptocurrency "will never go down in value" while failing to disclose the calculations or analysis behind its price projections. The commissioner also alleges that R2B Coin has misled potential investors about the possibility that the company will list its stock on a major stock exchange and that investors will be able to trade their tokens for stock (In the Matter of R2B Coin, January 24, 2018).

The order marks the third enforcement action taken by Texas securities regulators to stop a cryptocurrency offering, with each one having been taken against an offshore firm. In December 2017, Texas became the first state to issue an administrative order against a cryptocurrency promoter when the state ordered Dubai-based USI-Tech Limited to stop soliciting Texas residents to invest in a Bitcoin mining venture that had promised triple-digit return returns in targeted Craigslist advertisements. Just two weeks later, the Texas Securities Commissioner ordered an English company, BitConnect, to cease marketing a purported $4 billion cryptocurrency program that touted potential investment returns of up to 40 percent interest per month.

The order against R2B Coin states that the company is offering investors the opportunity to invest in "r2b coin" tokens through the firm’s website during a "pre-trade sales period" expected to last between three and four months. By means of the website, a series of conference calls, and other solicitations through "affiliates," R2B Coin has allegedly represented to investors that "you can get in for hundreds of bucks and make thousands of dollars" and "the faster you buy the more you will make." While R2B Coin determines the price of the tokens during the pre-trade sales period, the order alleges that R2B coin has intentionally failed to disclose the basis it uses to set the price and that buyers or sellers on the free market may later set a price that is different from the price set by R2B Coin.

The order also alleges that R2B Coin has misleadingly represented that the distributor of the tokens, Williams Corp. Ltd., is a "licensed global firm" and a "licensed securities dealer" based in Hong Kong and Dubai. The order notes that that the representations concerning registration are deceptive because R2B Coin is not disclosing either the name of the agency issuing a license to Williams Corp. or the nature of that license. Williams Corp. has never been registered to sell securities in Texas, according to the order.

R2B Coin has 31 days from the issuance of the order to contest the charges.

The order is No. ENF-18-CDO-1756.

MainStory: TopStory Enforcement FraudManipulation NewsFeed TexasNews

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