The BitConnect scandal of 2018 has pushed authorities to be more strict about promoting cryptocurrency to entice investors.
Although the BitConnect issue did not involve money laundering or ape JPGs, the case was still massive enough to spawn a court ruling that served as a warning for influencers. Authorities warned that influencers could be held liable for peddling questionable crypto investments.
Influencers Warned Against Promoting Crypto
BitConnect's promoters and influencers told its victims that if they gave their Bitcoin for a certain period, their crypto would be used by an automated trading bot that would turn the investment into massive profits.
However, none of that was true, and the promoters and influencers instead paid off older investors with funds from the new ones, bringing in $10 million per week at its peak. The crypto scam took in more than $2 billion worth of Bitcoin investments, according to Reuters.
In 2018, some investors filed a class-action lawsuit against BitConnect and several of its promoters. The investors wanted to hold the company, the influencers, and promoters are liable under a violation of the 1933 Securities Act that blocks soliciting investments in unregistered securities.
BitConnect's number one promoter, Glenn Arcaro, had already pleaded guilty to the fraud charges, but he got to have the case against him dismissed.
The court ruled that he did not actively try to convince people to invest in BitConnect, according to CNBC.
However, the investors appealed, and the 11th Circuit Court of Appeals has ruled in their favor to reinstate the section 12 claim they cited, allowing the case to proceed against Arcaro and one of his top promoters, Ryan Maasen.
The court found that when the promoters convinced its victims to purchase BitConnect coins in online videos, they still solicited the purchases that followed.
Judge Grant wrote that the Act does not restrict solicitations. Judge Grant said that they have never added that those efforts at persuasion must be personal or individualized.
Social Media Promotion is No Exemption
After the ruling, David Silver, the attorney representing the victims, said that the law is clear and that if you promote on social media, you can, and you will be held liable if something goes wrong.
Silver sent a statement to The Verge, and he wrote that on Feb. 19, the federal court confirmed that several BitConnect promoters have admitted in their pleas that the company's investment program was a fraud.
Silver added that even though the promoters were seeking investors through social media networks, it does not exempt them from the law and will still be held accountable.
Now, Silver is inviting people who bought into a cryptocurrency, ICO, or other investment based on an online solicitation to reach out to him, too.
However, it is unclear how the ruling will apply to some posts online. It could depend on what regulators count as security.
Cryptocurrency, such as Bitcoin, could count as a commodity and clear on this issue, but other products are considered riskier.
Earlier this month, a Youtuber was accused of stealing $500,000 worth of crypto from his fans by convincing them to invest in CxCoin.
Last year, fake Instagram accounts were used for a cryptocurrency scam.
Related Article: Cryptocurrency Scams: How to Spot and Avoid | Top 3 Schemes
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Written by Sophie Webster
