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Regulation and Compliance > Federal Regulation > SEC

Lobbyist Jack Abramoff Settles Crypto Fraud Case With SEC

By Jeff Berman

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The Securities and Exchange Commission on Thursday charged the political lobbyist Jack Abramoff, the Nevada-based NAC Foundation and its CEO with defrauding investors by conducting a “fraudulent,” unregistered offering of “AML BitCoin,” a digital asset security the defendants claimed was a new and improved version of Bitcoin.

Abramoff agreed to settle the case and be barred from the securities industry.

In separate complaints filed in U.S. District Court in San Francisco — one against Abramoff and the other against NAC and its CEO, Marcus Andrade — the SEC claimed NAC raised at least $5.6 million from more than 2,400 retail investors, mainly in the U.S., by selling tokens that could later be converted to AML (Anti-Money Laundering) BitCoin.

According to the SEC’s complaints, NAC and Andrade portrayed AML BitCoin as superior to the original Bitcoin, offering anti-money laundering, anti-terrorism and theft-resistant technology built into the coin on NAC’s own “privately regulated public blockchain.”

In reality, however, none of the capabilities touted by the defendants existed and the development of AML BitCoin and its blockchain technology system was in the very early stages, the SEC alleged.

According to the SEC, Abramoff and Andrade falsely claimed they were on the verge of advertising AML BitCoin during the Super Bowl in an effort to create interest in the offering, despite NAC being unable to afford the cost of the ad.

Super Bowl ads are notoriously expensive, reportedly coming in at more than $5 million for a 30-second spot in each of the past three years.

The defendants also “deceived investors by, among other things, making false and misleading statements in press releases, social media posts, and other promotional materials regarding the status of the technology and governmental agencies’ interest in using AML BitCoin in their payment systems,” according to the SEC. “Many of these false and misleading statements were also disseminated through paid articles that Abramoff arranged and helped write, which purported to be written by independent authors rather than disclosing that they were paid promotions of NAC,” the SEC alleged.

The regulator further alleged that Andrade directed a market manipulation strategy to boost the token’s trading volume and price and diverted about $1.1 million from the offering for his personal use.

“We allege that these defendants repeatedly misled investors into funding nonexistent technology, falsely claiming that the technology would make digital asset transactions more secure,” according to Kristina Littman, chief of the SEC Enforcement Division’s Cyber Unit. “Investors are entitled to truthful information so they can make fully informed investment decisions,” she said in a statement.

The SEC charged all three defendants with violating the antifraud and securities registration provisions of federal securities laws, and also charged Abramoff with broker-dealer registration violations.

The SEC seeks permanent injunctions, disgorgement and civil penalties, as well as injunctions prohibiting NAC and Andrade from participating in future securities offerings, and barring Andrade from serving as a public company officer or director, the regulator said.

Abramoff agreed to a settlement imposing permanent and conduct-based injunctions, officer-and-director, industry and penny stock bars, disgorgement of the $50,000 in commissions he received, plus prejudgment interest of $5,501, and reserves the issue of civil penalties for further determination by the court upon motion of the SEC, it said. The settlement is subject to court approval, the SEC noted.

The defendants did not immediately respond to ThinkAdvisor’s requests for comment.

The U.S. Attorney’s Office for the Northern District of California announced parallel criminal actions against Andrade and Abramoff, charging Andrade with wire fraud and Abramoff with conspiracy to commit wire fraud and lobbying disclosure violations.

Abramoff previously served four years of a six-year prison sentence for bribing U.S. officials.

Jeff Berman

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