Crypto Friendly Evolve Bank Under Scrutiny: Cease and Desist Order Issued

June 15, 2024 Bitcoin.com

Prime Trust can’t honor customer withdrawals, says Nevada regulator

June 23, 2023 Coin Telegraph

Nevada's business regulator issued a cease and desist order to the crypto custodian alleging it has a "shortfall of customer funds."

Prime Trust's financial condition is "critically deficient" and the crypto custodian has been unable to honor customer withdrawals since June 21, according to Nevada's business regulator.

In a June 21 cease and desist order, Nevada's Department of Business and Industry claimed Prime Trust's financial condition ha"considerably deteriorated" and the firm is now in an "unsafe or unsound condition" to continue business:

"On or about June 21, 2023, Respondent's [Prime Trust] was unable to honor customer withdrawals due to a shortfall of customer funds caused by a significant liability on the Respondent's balance sheet owed to customers."

The order added Prime Trust has "materially and willfully breached its fiduciary duties to its customers by failing to safeguard assets under its custody." The regulator again alleged the firm is "unable to meet all customer disbursement requests."

*Statements made by the Nevada Department of Business and Industry against Prime Trust. Source: Nevada Government*

Prime Trust has 30 days to respond to the cease and desist order and can request an administrative hearing to contest the order.

If Prime Trust fails to contest, the cease and desist order will be considered final.

On June 13, the payments subsidiary of Prime Trust, Banq, filed for bankruptcy protection in the United States.

Since then, wallet infrastructure provider and digital asset custodian BitGo confirmed on June 22 that it decided to cancel its acquisition of Prime Trust.

After considerable effort and work to find a path forward with Prime Trust, BitGo has made the hard decision to terminate its acquisition of Prime Trust. This decision was not made lightly and BitGo remains committed to our mission to deliver trust in digital assets.
— BitGo (@BitGo) June 22, 2023

Cointelegraph reached out to Prime Trust for comment but did not recieve an immediate response.

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Multiple US state regulators allege AI trading DApp is a Ponzi scheme

April 5, 2023 Coin Telegraph

Alabama

The scheme allegedly claimed it could generate returns of up to 2.2% a day by leveraging AI to trade more often and with higher profits than a person could.

Securities regulators from Montana, Texas, and Alabama have jointly filed enforcement actions against cryptocurrency trading platform YieldTrust.ai, alleging it is “perpetrating a Ponzi scheme.”

According to April 4 statements from the Montanan, Texan and Alabamian regulators, YieldTrust.ai and its Romanian owner, Stefan Ciopraga, claimed the decentralized application (DApp) called “YieldBot” is “powered by cutting-edge artificial intelligence” and is “capable of executing 70 times more trades with 25 times higher profits than any human trader could.”

The regulators alleged YieldTrust didn’t provide “any proof” to investors that the artificial intelligence (AI)-powered bot exists, “let alone that it is performing at the level YieldTrust.ai claims.”

Montana’s regulator stated in its cease and desist order that YieldBot was developed for Binance’s BNB Smart Chain and could interface with staking programs to generate returns for new investors of up to 2.2% per day through:

“[Analyzing] the crypto markets and – in milliseconds – make its own trading decisions, autonomously choosing from hundreds of trading methods and chaining them together to create unique strategies – achieving an exhilarating performance.”

However, the state regulators claimed an independent firm that conducted an audit of YieldBot’s smart contract found it was “dangerous,” as “the deploying team retained sufficient control to block users from withdrawing their assets.”

As noted by the regulator's statements and highlighted in an April 4 tweet from Montana’s securities commissioner, Troy Downing, scammers are apparently capitalizing on the hype surrounding AI “by developing high-tech ploys to deceive investors.”

Artificial intelligence may be an exciting concept, but scammers are attempting to capitalize on the excitement by developing high-tech ploys to deceive investors.#AI #SecuritiesFraud #InvestmentScam #MTNews https://t.co/FMSqLJW40E
— Commissioner Troy Downing (@DowningCSIMT) April 4, 2023

An order from Montana’s regulator demands YieldTrust.ai cease and desist all activity in the state and seeks a total of $100,000 in fines while the Texas State Securities Board issued multiple cease and desist orders.

After the audit of its smart contract was published, YieldTrust.ai allegedly announced it would cease operations, which appears to be verified by the lack of trading activity according to DappRadar data.

*Activity on YieldTrust.ai’s dApp from Feb. 1 to April 5. Source:* *DappRadar*

However, the regulator’s orders accuse YieldTrust.ai of “raising capital from the public to cover withdrawals from prior investors,” which, alongside the promise of high returns, are the characteristics of a Ponzi scheme.

YieldTrust.ai’s website has been taken offline and its Twitter account deleted. Cointelegraph was unable to contact YieldTrust.ai or Ciopraga for comment.

AI has become far more prominent, accessible and surrounded by hype since the release of the ChatGPT AI chatbot on Nov. 30 by AI research company OpenAI.

Despite its inaccuracy at times, ChatGPT has proved to be a powerful tool, with the latest version capable of passing the bar, acing SATs and even identifying exploits in smart contracts.

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Nexo agrees to $45M settlement with SEC and NASAA over earn product

January 19, 2023 Coin Telegraph

Nexo agrees to M settlement with SEC and NASAA over earn product

Cease and Desist

The crypto lender didn't categorically admit or deny the findings from the SEC's investigation despite agreeing to the settlement.

Crypto lender Nexo Capital has agreed to pay $45 million in penalties to the United States Securities Exchange Commission (SEC) and The North American Securities Administrators Association (NASAA) for allegedly failing to register the offer and sale of its Earn Interest Product (EIP).

The news was announced by the SEC and NASAA in two separate statements on Jan. 19. According to a statement from the SEC, Nexo agreed to pay a $22.5 million penalty and cease its unregistered offer and sale of the EIP to U.S. investors.

The additional $22.5 million will be paid in fines to settle similar charges by state regulatory authorities, the report said.

NASAA in its Jan. 19 statement said that the settlement in principle comes after investigations into Nexo's alleged offer and sale of securities after the past year of investigations.

"During the investigation, it was discovered that EIP investors could passively earn interest on digital assets by loaning those assets to Nexo."

"Nexo maintained total discretion over the revenue-generating activities utilized to earn returns for investors. The company offered and promoted the EIP and other products to investors in the U.S. via its website and social media channels suggesting in some instances that investors could obtain returns as high as 36%," it stated.

The SEC stated that in the settlement negotiations, the Commission took into consideration the level of cooperation and the remedial acts promptly undertaken by Nexo in addressing their shortfalls.

SEC Chairman Gary Gensler further explained the situation at hand:

"We charged Nexo with failing to register its retail crypto lending product before offering it to the public, bypassing essential disclosure requirements designed to protect investors."

"Compliance with our time-tested public policies isn’t a choice. Where crypto companies do not comply, we will continue to follow the facts and the law to hold them accountable. In this case, among other actions, Nexo is ceasing its unregistered lending product as to all U.S. investors," he added.

While the firm didn't categorically admit or deny the findings from the SEC's investigation, Nexo's settlement came on the back of a cease-and-desist order agreement which prohibited the firm from violation any provisions set out in the Securities Act of 1933.

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‘Smear campaign’: Nexo responds to accusations of stealing donations, siphoning funds from charity

June 27, 2022 Coin Telegraph

Cease and Desist

A pseudonymous Twitter account making a series of accusations against Nexo has caused the crypto lender to issue a cease and desist notice.

Cryptocurrency lending platform Nexo has hit back at what it called “fake news” and rumors that its founders were part of a charity embezzlement scandal, saying the claims are untrue and defamatory. It has issued a public cease and desist notice to the originator of the allegations.

In a blog post about the claims, Nexo stated:

“Several anonymous Twitter accounts are using lies and distortion in yet another smear campaign against Nexo and profiting from short positions in a distressed market.”

The pseudonymous Twitter account otteroooo, who calls themselves “Otter,” posted a series of tweets on June 25, claiming that Nexo’s co-founders stole funds from the Bulgarian charity HelpKarma to buy real estate and fund “lavish personal travel”.

NEXO FOUNDER & FAMILY SIPHONED FUNDS FROM CHARITY FOR SICK KIDS, USED DONATIONS AS PERSONAL SLUSH FUND, EVEN BUILT A PALACE FOR THEMSELVES

Evidences presented in full by otter below

no bueno!

— otteroooo (@otteroooo) June 26, 2022

The thread garnered a large audience on Twitter, with Otter sharing a screenshot that it had received over 9 million impressions, prompting Nexo to respond to what they say are “ludicrous allegations” and issue the cease and desist notice.

The central allegation Otter makes is that the founder of HelpKarma and co-founder of Nexo "Konsta Kanchev" used funds from donations to help build a palace instead of using the money for children's medical treatments.

Konsta Kanchev (Bulgarian Boy 1) embezzled the funds and went on to build a muthaf*ckin PALACE, "the size of a high school"

The money came from the donations of more than 130,000 Bulgarians who readily donated into what they thought was meant for medical treatment for children pic.twitter.com/NCd7TLbF4A
— otteroooo (@otteroooo) June 26, 2022

In a response by Nexo it points out that a “Konsta Kanchev” doesn’t exist and Otter deliberately made the name “to mimic a typo as an excuse to fact-checkers” by confusing two separate people, HelpKarma founder Constantine Krastev and Nexo co-founder Kosta Kantchev, as the same person.

Speaking to Cointelegraph regarding conflating the two, Otter shared a delisted article from the Bulgarian outlet Fakti saying the two are cousins and that Constantine in Bulgarian is spelled “Konstantin” but has since not provided further commentary.

Another major allegation Otter makes is that as HelpKarma's donations increased, the payday loans company Credissimo started to report considerable increases in its capital, citing a November 2020 report by Fakti, implying that the donations were used to fund Credissimo.

On how this scandal links to Nexo, Otter points out that Nexo's white paper says it's "powered by Credissimo." Credissimo was founded by Kantchev, and Nexo co-founders Georgi Shulev and Antoni Trenchev were the companies' business development and innovation officers, respectively.

In response to the claims, Nexo said that it and HelpKarma “have not and never had any common operations, common beneficial owners or common management,” adding:

“‘Why would a company with hundreds of millions in revenues and billions of assets under management, vetted by Fidelity, Mastercard and dozens of regulators ever have to resort to petty theft, let alone from children with medical needs?’ is the logical yet neglected question.”

Cointelegraph contacted Nexo for comment on the allegations and is yet to receive a response.

The main motive Nexo states as for why Otter posted the allegations is so that Otter can gain a large following and sell the account.

Nexo shared images of an individual who attempted to purchase Otter's account, to which Otter responds they want a minimum of $50,000 USD Coin (USDC) for it.

But in a Twitter thread posted by Otter on June 26, they claim they suspected the messages to be a “set up” to buy the account so that Nexo could silence them. They instead “hatched a troll plan” to sell the Otter account to collect Nexo’s “silence money” and make another account to “continue exposing them.”

Nexo says this isn’t the first time they’ve been part of what they call a “coordinated attack,” citing the 2020 accusations that it was behind Zeus Capital, an asset management firm that wanted to short Chainlink (LINK).