Case 1:21-cv-04791 Document 1 Filed 05/28/21 Page 1 of 39
`
`RICHARD R. BEST
`REGIONAL DIRECTOR
`Lara Shalov Mehraban
`John O. Enright
`Jorge G. Tenreiro
`Mark R. Sylvester
`Michael Baker
`Gwen Licardo
`Pamela Sawhney
`Attorneys for Plaintiff
`SECURITIES AND EXCHANGE COMMISSION
`New York Regional Office
`Brookfield Place
`200 Vesey Street, Suite 400
`New York, New York 10281-1022
`(212) 336-9145 (Tenreiro)
`TenreiroJ@sec.gov
`
`UNITED STATES DISTRICT COURT
`SOUTHERN DISTRICT OF NEW YORK
`
`SECURITIES AND EXCHANGE
`COMMISSION,
` Plaintiff,
`
` -against-
`
`TREVON BROWN,
`CRAIG GRANT,
`JOSHUA JEPPESEN,
`RYAN MAASEN, and
`MICHAEL NOBLE,
` Defendants,
`
` -and-
`
`LAURA MASCOLA,
` Relief Defendant.
`
`
`
`
`
`
`
`
`
`COMPLAINT
`
`21 Civ. 4791
`
`
`
`
`
`
`JURY TRIAL DEMANDED
`
`
`
`
`Plaintiff Securities and Exchange Commission (“SEC”), for its Complaint against
`
`Defendants Trevon Brown (“Brown”), Craig Grant (“Grant”), Joshua Jeppesen (“Jeppesen”), Ryan
`
`Maasen (“Maasen”), and Michael Noble (“Noble”) (collectively, “Defendants”) and Relief
`
`Defendant Laura Mascola (“Mascola”), alleges as follows:
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`

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`Case 1:21-cv-04791 Document 1 Filed 05/28/21 Page 2 of 39
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`SUMMARY
`
`1.
`
`From approximately January 2017 to January 2018, BitConnect, an unincorporated
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`organization, raised approximately $2 billion by conducting an unregistered offering and sale of
`
`securities in the form of investments into BitConnect’s “lending program.” Defendants Brown,
`
`Grant, Maasen, and Noble, along with BitConnect itself and others, offered and sold the lending
`
`program as securities without registering the offering with the SEC as required by the federal
`
`securities laws and without a valid exemption from this registration requirement. Defendant
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`Jeppesen aided and abetted BitConnect’s unregistered offer and sale of these securities.
`
`2.
`
`To raise over $2 billion from these unregistered offers and sales of securities,
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`BitConnect used a network of promoters—including Brown, Grant, Maasen, and Noble—who
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`advertised the merits of investing in BitConnect’s lending program to prospective retail investors
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`and in return received a percentage of the invested funds they obtained. They did so without being
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`registered as broker-dealers with the SEC, as the federal securities laws require.
`
`3.
`
`To conduct its offer and sale of securities, BitConnect told investors it would deploy
`
`investor funds to trade in and profit from the volatility of Bitcoin. In return, BitConnect promised
`
`to pay investors the resulting profits, which BitConnect promised could be as high as approximately
`
`40% per month. BitConnect also offered referral commissions to existing investors who referred
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`new investors to the lending program.
`
`4.
`
`Brown, Grant, Maasen, and Noble promoted and touted investments into the
`
`lending program to potential retail investors, including by creating “testimonial”-style videos
`
`advertising the merits of investing in the program and then publishing the videos on YouTube,
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`sometimes multiple times a day, with a referral link to the BitConnect lending program.
`
`5.
`
`For each new loan that Brown, Grant, Maasen, or Noble brought in, BitConnect
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`paid the respective promoter a percentage of that new investment as “referral commissions.” The
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`2
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`Case 1:21-cv-04791 Document 1 Filed 05/28/21 Page 3 of 39
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`referral commissions initially ranged between 0.2% and 7% and later ranged between 2% and a
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`maximum of 5%.
`
`6.
`
`BitConnect also awarded its top promoters—including Brown, Grant, Maasen, and
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`Noble, who were among BitConnect’s most successful promoters in the United States—an
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`additional sales commission it called “development funds.” The “development funds” were paid
`
`weekly and were calculated as a certain percentage of new loans made during that week by certain
`
`investors (typically those recruited by the individual promoter, or by investors that the individual
`
`promoter’s investors had recruited).
`
`7.
`
`Brown obtained at least $480,000, Grant over $1.3 million, Maasen over $475,000,
`
`and Noble over $730,000 as “referral commissions” and “development funds” from promoting and
`
`touting investments into BitConnect’s lending program to retail investors.
`
`8.
`
`As BitConnect’s “Continental Promoter,” Jeppesen served as a liaison between
`
`BitConnect and the national promoters appointed by BitConnect to manage the promoter networks
`
`within their own countries and represented BitConnect at conferences and promotional events.
`
`9.
`
`By aiding and abetting BitConnect’s unregistered offers and sales of its lending
`
`program investments, Jeppesen obtained over $2.6 million, of which he transferred over $500,000 to
`
`Mascola, his fiancée.
`
`VIOLATIONS
`
`10.
`
`By virtue of the foregoing conduct and as alleged further herein, Defendants Brown,
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`Grant, Maasen, and Noble violated Section 5 of the Securities Act of 1933 (“Securities Act”) [15
`
`U.S.C. § 77e(a)] and Section 15(a) of the Securities Exchange Act of 1934 (“Exchange Act”) [15
`
`U.S.C. § 78o(a)]; and Defendant Jeppesen aided and abetted BitConnect’s violations of Section 5 of
`
`the Securities Act [15 U.S.C. § 77e(a)].
`
`11.
`
`Unless Defendants are restrained and enjoined, they will engage in the acts, practices,
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`
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`3
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`Case 1:21-cv-04791 Document 1 Filed 05/28/21 Page 4 of 39
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`transactions, and courses of business set forth in this Complaint or in acts, practices, transactions,
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`and courses of business of similar type and object.
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`NATURE OF THE PROCEEDINGS AND RELIEF SOUGHT
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`12.
`
`The SEC brings this action pursuant to the authority conferred upon it by Securities
`
`Act Section 20(b) and Section 20(d) [15 U.S.C. §§ 77t(b) and 77t(d)] and Exchange Act Section 21(d)
`
`[15 U.S.C. § 78u(d)].
`
`13.
`
`The SEC seeks a final judgment: (a) permanently enjoining Defendants from
`
`violating the federal securities laws and rules this Complaint alleges they have violated; (b)
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`permanently enjoining Defendants as specified in the Prayer for Relief below; (c) ordering
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`Defendants and Mascola to disgorge all ill-gotten gains and/or unjust enrichment they received as a
`
`result of the violations alleged herein and to pay prejudgment interest thereon, pursuant to
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`Exchange Act Sections 21(d)(5) and 21(d)(7) [15 U.S.C. §§ 78u(d)(5) and 78u(d)(7)]; (d) ordering
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`Defendants to pay civil money penalties pursuant to Securities Act Section 20(d) [15 U.S.C. § 77t(d)]
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`and, with respect to Defendants Brown, Grant, Maasen, and Noble, pursuant to Exchange Act
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`Section 21(d)(3) [15 U.S.C. § 78u(d)(3)]; and (e) ordering any other and further relief the Court may
`
`deem just and proper.
`
`JURISDICTION AND VENUE
`
`14.
`
`This Court has jurisdiction over this action pursuant to Securities Act Section 22(a)
`
`[15 U.S.C. § 77v(a)] and Exchange Act Section 27 [15 U.S.C. § 78aa].
`
`15.
`
`Defendants, directly and indirectly, have made use of the means or instrumentalities
`
`of interstate commerce or of the mails in connection with the transactions, acts, practices, and
`
`courses of business alleged herein.
`
`16.
`
`Venue lies in this District under Securities Act Section 22(a) [15 U.S.C. § 77v(a)] and
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`Exchange Act Section 27 [15 U.S.C. § 78aa]. Certain of the acts, practices, transactions, and courses
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`
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`4
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`Case 1:21-cv-04791 Document 1 Filed 05/28/21 Page 5 of 39
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`of business alleged in this Complaint occurred within this District. Defendants Brown, Grant,
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`Maasen, and Noble solicited investors in this District. In addition, during the relevant time period,
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`each Defendant maintained one or more accounts at a digital asset exchange and custodian company
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`that is a New York trust company headquartered in the District. To obtain payment from
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`BitConnect for the conduct alleged herein, each Defendant transacted in Bitcoin between wallet
`
`addresses controlled by BitConnect and wallet addresses associated with their own individual
`
`accounts at the New York digital asset exchange and custodian company.
`
`DEFENDANTS
`
`17.
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`Brown, age 31, resides in Myrtle Beach, South Carolina. He was a regional promoter
`
`for BitConnect. Brown invoked his right against self-incrimination during portions of his testimony
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`to the SEC in the investigation leading up to the filing of this case.
`
`18.
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`Grant, age 46, resides in Kissimmee, Florida. He was a regional promoter for
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`BitConnect.
`
`19.
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`Jeppesen, age 37, resides in East Falmouth, Massachusetts. Jeppesen was a
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`“Continental Promoter” for BitConnect, and, starting in late October 2017, BitConnect’s “Second
`
`United States National Promoter.”
`
`20. Maasen, age 39, resides in Tulsa, Oklahoma. He was a regional promoter for
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`BitConnect.
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`21. Noble, age 51, resides in Pacific Palisades, California. He was a regional promoter
`
`for BitConnect.
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`RELIEF DEFENDANT
`
`22.
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`Laura Mascola (“Mascola”), age 33, resides in East Falmouth, Massachusetts. She
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`became Jeppesen’s girlfriend before he started working with BitConnect in 2017 and is now
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`Jeppesen’s fiancée.
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`
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`5
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`Case 1:21-cv-04791 Document 1 Filed 05/28/21 Page 6 of 39
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`RELATED ENTITY AND INDIVIDUALS
`
`23.
`
`BitConnect is an unincorporated organization established in approximately 2016 by
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`BitConnect’s founder (the “BitConnect Founder”). Between July 2016 and September 2017,
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`BitConnect registered several companies with Companies House in the United Kingdom:
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`BitConnect Ltd., BitConnect International PLC, BitConnect Trading Ltd., and Bitcoin AMR Ltd.
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`These U.K. entities are currently either defunct or dissolved.
`
`24.
`
`BitConnect Founder is an Indian citizen and resident who founded, managed, and
`
`controlled BitConnect at all relevant times.
`
`25.
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`United States National Promoter is a California resident who served as
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`BitConnect’s national promoter in the United States from approximately August 2017 to January
`
`2018. In that role, he was responsible for, among other things, communicating information and
`
`instructions from BitConnect to its regional promoters in the United States, including Defendants
`
`Brown, Grant, Maasen, and Noble.
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`STATUTORY AND LEGAL FRAMEWORK
`
`26.
`
`Sections 5(a) and 5(c) of the Securities Act require that an issuer of securities, such as
`
`BitConnect, register offers and sales of those securities with the SEC when they offer and sell
`
`securities to the public, absent certain specified exemptions. Registration statements relating to an
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`offering of securities thus provide public investors with material information about the issuer and
`
`the offering, including financial and managerial information, how the issuer will use offering
`
`proceeds, and the risks and trends that affect the enterprise and an investment in its securities.
`
`27.
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`The definition of a “security” under the Securities Act includes a wide range of
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`investment vehicles, including “investment contracts.” As the United States Supreme Court noted in
`
`SEC v. W.J. Howey Co., Congress defined “security” broadly to embody a “flexible rather than a static
`
`principle, one that is capable of adaptation to meet the countless and variable schemes devised by
`
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`Case 1:21-cv-04791 Document 1 Filed 05/28/21 Page 7 of 39
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`those who seek the use of the money of others on the promise of profits,” 328 U.S. 293, 299 (1946),
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`such that “investment contracts” are instruments, schemes, or transactions through which a person
`
`invests money in a common enterprise and reasonably expects profits or returns derived from the
`
`entrepreneurial or managerial efforts of others. Courts have found that novel or unique investment
`
`vehicles constitute investment contracts, including interests in orange groves, animal breeding
`
`programs, railroads, mobile phones, and enterprises that exist only on the Internet.
`
`28.
`
`Section 15(a)(1) of the Exchange Act [15 U.S.C. § 78o(a)(1)] requires securities
`
`brokers to register with the SEC or, if they are individuals, to be associated with a brokerage firm
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`registered with the SEC.
`
`29.
`
`This registration requirement ensures that, among other things, brokers have
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`adequate supervision and training before soliciting funds from investors.
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`30. While courts have recognized a number of factors that render a person a securities
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`broker, the hallmarks of being a broker include actively soliciting investments (rather than passively
`
`obtaining them) and receiving transaction-based compensation, often in the form of a percentage of
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`the funds raised for investments.
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`BACKGROUND ON DIGITAL ASSETS AND DISTRIBUTED LEDGERS
`
`31.
`
`The term “digital asset” or “digital token” generally refers to an asset issued and/or
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`transferred using distributed ledger or blockchain technology, including assets sometimes referred to
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`as “cryptocurrencies,” “virtual currencies,” digital “coins,” and digital “tokens.”
`
`32.
`
`A blockchain or distributed ledger is a peer-to-peer database spread across a network
`
`of computers that records all transactions in theoretically unchangeable, digitally recorded data
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`packages. The system relies on cryptographic techniques for secure recording of transactions.
`
`33.
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`Entities have offered and sold digital assets in fundraising events, often called initial
`
`coin offerings (“ICOs”), in exchange for consideration.
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`Case 1:21-cv-04791 Document 1 Filed 05/28/21 Page 8 of 39
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`34.
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`Digital tokens may be traded on digital asset trading platforms in exchange for other
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`digital assets (such as Bitcoin) or currency (i.e., legal tender issued by a country).
`
`35.
`
`Some digital assets may be “native tokens” to a particular blockchain—meaning that
`
`they are represented on their own blockchain. Like other “digital tokens,” native tokens may also be
`
`sold and traded for consideration.
`
`I.
`
`Background on BitConnect
`
`FACTS
`
`36.
`
`In approximately 2016, the BitConnect Founder created BitConnect. To do so,
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`among other things, he created a native digital token called the “BitConnect Coin” (“BCC”), which
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`was based on its own blockchain. He also registered domain names for three websites relating to
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`BitConnect—https://bitconnect.co, https://bitconnect.com, and https://bitconnectcoin.co. ). The
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`domains “bitconnect.co” and “bitconnect.com” (which had substantially similar content as it relates
`
`to this Complaint and are referred to herein as the “BitConnect Website”) provided information
`
`about BitConnect, BCC, the lending program, and an account login link. From approximately 2016
`
`to 2018, BitConnect also maintained the “bitconnectcoin.co” website, which provided information
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`concerning BCC.
`
`37.
`
`BitConnect claimed on the BitConnect Website that BCC “is an open source, peer-
`
`to-peer, community driven decentralized cryptocurrency.” BitConnect also claimed on the
`
`“bitconnect.com” website that it was based on “decentralized blockchain transaction technology, so
`
`no centralized third party to trust [sic]. Transactions are performed directly between the users.”
`
`38.
`
`From approximately November 2016 to January 2017, BitConnect conducted an
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`ICO of BCC, during which BitConnect sold approximately 5 million BCC out of the maximum
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`supply of 28 million BCC tokens created upon the launch of the blockchain for which the BCC
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`tokens were the native token.
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`Case 1:21-cv-04791 Document 1 Filed 05/28/21 Page 9 of 39
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`39.
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`In January 2017, BitConnect launched a purported digital asset trading platform on
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`the BitConnect Website (the “BitConnect Exchange”).
`
`40.
`
`BitConnect stated that users could supposedly buy, sell, and trade BCC for Bitcoin
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`and vice versa on the BitConnect Exchange by transacting directly with other BCC holders in peer-
`
`to-peer transactions with “no central organization involved.”
`
`II.
`
`BitConnect Engaged in Unregistered Offers and Sales of Investments in the Lending
`Program.
`41.
`
`Beginning in January 2017, BitConnect offered investors the opportunity to
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`participate in a series of schemes or transactions that would give them the opportunity to earn daily
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`interest payments by essentially tendering Bitcoin to BitConnect in return for “interest” payments
`
`(the “Lending Program”).
`
`42.
`
`BitConnect offered investors, on the BitConnect Website, the opportunity to
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`participate in the series of schemes or transactions that constituted the supposed Lending Program
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`from approximately January 2017 to January 16, 2018.
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`43.
`
`BitConnect posted daily interest rates, historical returns, periodic updates and news
`
`releases about the Lending Program on the BitConnect Website.
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`44.
`
`From approximately August 2017 to January 2018, BitConnect also advertised the
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`Lending Program on Coinmarketcap.com, a popular website in the digital asset space that tracks
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`price, available supply, trade volume, and market capitalization of various digital tokens.
`
`45.
`
`No registration statement has ever been filed with the SEC in connection with offers
`
`or sales of the Lending Program investments.
`
`A.
`
`46.
`
`BitConnect Offered and Sold Investments into the Lending Program.
`
`BitConnect claimed on the BitConnect Website that the interest returns investors
`
`would receive were generated by BitConnect’s proprietary “trading bot and volatility software.”
`
`BitConnect claimed (with emphasis in the original) that the volatility trading bot generated returns
`
`
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`Case 1:21-cv-04791 Document 1 Filed 05/28/21 Page 10 of 39
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`by “tracking the volatility of BTC [Bitcoin] vs USD [the United States dollar (“USD”)] and the
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`volatility of USD against major world currencies” (the “Trading Bot”).1
`
`47.
`
`The BitConnect Website claimed: “The interest rate on lending will be calculated by
`
`our Bitconnect price volatility software. The earning interest on bitcoin lending float over the time
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`[sic] and is exclusively decided by the software and Bitconnect Trading Bot. Bitconnect will consider
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`last closing interest rate of Bitconnect price volatility software for next day’s interest rate.”
`
`48.
`
`BitConnect marketed its Lending Program to prospective investors as a safe,
`
`profitable investment: “Investing on BitConnect platform, as you will find, is a safe way to earn a
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`high rate of return on your investment without having to undergo a significant amount of risk.”
`
`49.
`
`The BitConnect Website featured an advertising banner promising profits of 40%
`
`interest per month “with no risk.”
`
`50.
`
`The BitConnect Website included a chart showing historical returns of up to 2%
`
`daily, with no negative returns for any day.
`
`51.
`
`The BitConnect Website also provided a “projected earnings calculator,” which
`
`purported to calculate projected future earnings on investors’ loans by using the Lending Program
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`interest rates reported by BitConnect over the prior thirty days.
`
`52.
`
`To participate in the Lending Program, an investor was first required to create an
`
`account on the BitConnect Website, and then to transfer Bitcoin to a Bitcoin blockchain address
`
`provided to the investor and controlled by BitConnect. The investor’s account page on the
`
`BitConnect Website would then reflect the investor’s Bitcoin investment in the investor’s Bitcoin
`
`wallet. The investor could then remit the Bitcoin to BitConnect to purportedly purchase BCC
`
`tokens on the BitConnect Exchange, and then “lend” the BCC tokens to BitConnect, which, in turn,
`
`
`1
`A “trading bot” is computer software programmed to trade a digital asset based upon pre-
`determined parameters.
`
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`Case 1:21-cv-04791 Document 1 Filed 05/28/21 Page 11 of 39
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`would purportedly invest these proceeds into the volatility of Bitcoin via the Trading Bot.
`
`53.
`
`BitConnect pooled the investors’ Bitcoin in a series of addresses (also known as a
`
`“digital wallet”) on the Bitcoin blockchain, which BitConnect controlled.
`
`54.
`
`The Lending Program required investors to “lock-up” (commit) their funds for
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`investment to terms ranging between 120 days to 299 days.
`
`55.
`
`BitConnect purported to “pay” daily interest to Lending Program investors in the
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`form of credits denominated in USD appearing on each investor’s individual account page on the
`
`BitConnect Website.
`
`56.
`
`At the end of an investor’s chosen lock-up period, BitConnect displayed a supposed
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`credit to the investor’s BitConnect account on the BitConnect Website. The interest payments and
`
`principal were represented as USD amounts, although BitConnect’s Website did not allow investors
`
`to withdraw funds, including supposed investment returns, in USD. Instead, to cash out interest or
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`principal on a Lending Program investment, an investor had to request that BitConnect convert the
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`value displayed in USD back into BCC tokens, which the investor then had to purportedly sell for
`
`Bitcoin on the BitConnect Exchange and, then, finally, the investor would request that BitConnect
`
`send the Bitcoin to the investor’s chosen address on the Bitcoin blockchain.
`
`57.
`
`The BitConnect Website’s FAQs represented that the profit or revenue BitConnect
`
`generated from its Trading Bot would be shared pro rata with the Lending Program investors, and
`
`the FAQs described the Lending Program as follows (with emphasis in the original):
`
`1. When you invest in Bitconnect lending platform [sic], your investment
`directly goes to Bitconnect [T]rading [B]ot to generate profit.
`2. Bitconnect volatility software calculate [sic] and share generated revenue to
`all members.
`3. Members profit deposited daily [sic] on their lending wallet.
`4. You can transfer it to BitConnect wallet at market price of BitConnect
`coin and exchange BitConnect coin to Bitcoin on exchange platform.
`
`58.
`
`As the foregoing demonstrates, BitConnect marketed and promoted the Lending
`
`
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`Case 1:21-cv-04791 Document 1 Filed 05/28/21 Page 12 of 39
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`Program as essentially guaranteeing investors profits based solely upon BitConnect’s (and its
`
`supposed Trading Bot’s) entrepreneurial and managerial efforts.
`
`59.
`
`In fact, because BitConnect marketed the Trading Bot that formed the supposed
`
`centerpiece of the Lending Program as proprietary, investors had no control over the success or
`
`failure of their Lending Program investment and could take no steps that would determine the fate
`
`of their investments—all investors could do was decide whether, when, and how much to invest
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`into the Lending Program, and whether to withdraw supposed returns after the lock-up periods
`
`required them to do so.
`
`B.
`
`60.
`
`The Lending Program Included a “Referral Program.”
`
`The series of schemes or transactions that comprised the Lending Program also
`
`included a “referral program.”
`
`61.
`
`To sell more Lending Program investments, BitConnect’s Website offered investors
`
`the opportunity to earn additional returns, as bonuses or “commissions,” via a “referral program”
`
`that would offer payouts based on how many new investors the investor recruited into the Lending
`
`Program.
`
`62.
`
`Initially, BitConnect offered a seven-tier structure of referral commissions, as
`
`described below, with the commission reflected on the investor’s BitConnect Website account for
`
`every new investment directly or indirectly procured by the original investor or “sponsor.”
`
`63.
`
`For directly bringing in a new investor, the sponsor received 7% of the new
`
`investors’ (the “Level 1 investors”) investment value, denoted as a USD “credit” in the sponsor’s
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`BitConnect Website account.
`
`64.
`
`The sponsor also received additional, residual referral commissions for any new
`
`investments made by investors recruited by the Level 1 investors, or by investors recruited by those
`
`investors continuing downstream, also known as a promoter’s “downline.” Thus, in addition to the
`
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`Case 1:21-cv-04791 Document 1 Filed 05/28/21 Page 13 of 39
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`7% commission for a Level 1 investor, BitConnect credited a sponsor 3%, 1%, 0.5%, 0.3%, and
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`0.2% commissions on the investment of each investor brought in through the sponsor’s downline,
`
`depending on the investment level (i.e., 3% for investors procured by a promoter’s Level 1 investor,
`
`1% for investors procured by the foregoing investors, and so on). This structure was set forth by
`
`BitConnect utilizing the figure shown in Graphic 1, below.
`
`Graphic 1: BitConnect Referral Program Payouts
`
`
`
`65.
`
`On approximately November 3, 2017, BitConnect changed the referral commission
`
`payouts, reducing the commission levels to three tiers. Sponsors then received a 5% commission for
`
`the investment values of their Level 1 investors, a 3% commission for the investment values of any
`
`new investors their Level 1 investors brought in, and a 2% commission for the investment values of
`
`any investors those new investors brought in.
`
`66.
`
`Through the referral commissions and other means, BitConnect organized a global
`
`network of promoters, with a hierarchy of regional, national, and continental promoters, and
`
`recruited such promoters by, among other things, advertising on the BitConnect Website.
`
`67.
`
`Though the referral program was an important component of BitConnect’s and its
`
`promoters’ solicitation of investors, an investor’s participation in the referral program was entirely
`
`optional—the investor could simply invest in the Lending Program and await the supposed returns
`
`
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`Case 1:21-cv-04791 Document 1 Filed 05/28/21 Page 14 of 39
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`on her investment based solely upon BitConnect’s efforts via the supposed Trading Bot.
`
`III. BitConnect Recruited Promoters to Solicit Investments in the Lending Program.
`68.
`
`BitConnect also used the referral program to attract more investors, as well as recruit
`
`those that would act more as promoters—earning more funds under the referral program than as
`
`investors, as Defendants Brown, Grant, Maasen and Noble eventually did.
`
`69.
`
`A post on BitConnect’s Website, entitled “Bitconnect promoters rules and
`
`regulation” and dated March 18, 2016, explained the role of BitConnect promoters:
`
`Bitconnect promoters…are able to attract new members online and offline.
`Bitconnect promoters will teach other Bitconnect members…how to attract
`participants in social networks, how to make promotional pictures, how to
`create your own blogs and websites…. A Promoter has an active role in
`Bitconnect System. He is a person who is responsible to control and guide his
`team. His primary duty is to consult and register new participants….
`
` Promoter must be aware about all the activities and updates going on in
`BitConnect System. He should be well versed about how the system works,
`how to register new participants. He should know about the Current growth
`on Bitcoin lending and current referral commission, as well as, keep a daily
`watch on the official web-site Bitconnect.co for Updates…. All Promoters are
`required to execute any order given by the Bitconnect system without any
`undue delay.
`
` A
`
`As part of its promotional efforts to recruit both investors and promoters,
`
`
`70.
`
`BitConnect also sponsored in-person events promoting BitConnect and/or the Lending Program,
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`during which BitConnect or BitConnect representatives promoted the Lending Program by
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`displaying or gifting luxurious items to attendees.
`
`71.
`
`These promotional events included: (1) an event in Edison, New Jersey in May 2017;
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`(2) an expenses-paid trip for promoters in Bangkok, Thailand in July 2017 (the “Bangkok Event”);
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`(3) BitConnect’s first and only “Annual Ceremony” in Pattaya, Thailand (the “Pattaya Event”) in
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`October 2017; (4) the Blockchain Expo North America in Santa Clara, California in November 2017
`
`(the “Blockchain Expo”) and a series of events coinciding with the Blockchain Expo in and around
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`Santa Clara, California in November and December 2017 (the “Santa Clara Events”); and (5) an
`
`
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`Case 1:21-cv-04791 Document 1 Filed 05/28/21 Page 15 of 39
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`expenses-paid meeting for national promoters in Dubai in December 2017 (the “Dubai Event”).
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`72. Many BitConnect Lending Program investors and promoters attended these events.
`
`73.
`
`The BitConnect Founder presided over the Bangkok Event, and appointed “national
`
`promoters” for several countries (including the United States National Promoter) and appointed
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`Jeppesen as a “continental promoter,” as alleged in paragraph 190 below, at or immediately
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`following the Bangkok Event.
`
`74.
`
`At the Bangkok Event, the BitConnect Founder told the national promoters that
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`BitConnect would pay “development funds” to be used by promoters to market BitConnect and for
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`the national promoters’ own personal use, and that they would have discretion to allocate portions
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`of their “development funds” to their regional promoters, i.e., the promoters immediately beneath
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`the national promoters in the promoter hierarchy or “downline.”
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`75.
`
`In approximately August 2017, BitConnect began paying its national promoters
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`“development funds” commissions each week by crediting the national promoters’ BitConnect
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`accounts with an amount denoted in USD.
`
`76.
`
`BitConnect calculated each national promoter’s weekly “development funds”
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`commissions as a certain percentage of the total volume of new loans made by investors in the
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`national promoter’s downline during a given week.
`
`77.
`
`The national promoters could share their “development funds” with the regional
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`promoters in their downline and had discretion to determine the amount that each regional
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`promoter would receive. The national promoters typically allocated the “development funds” by
`
`assigning a percentage to each regional promoter on the “Promoter” tab section of their dashboard
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`on the BitConnect Website.
`
`78.
`
`In approximately October 2017, the BitConnect Founder, with Jeppesen’s assistance
`
`in his role as “continental promoter,” developed “promoter rules” for national promoters and
`
`
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`Case 1:21-cv-04791 Document 1 Filed 05/28/21 Page 16 of 39
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`regional promoters.
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`79.
`
`Among the rules for “Top Promoters” (national promoters) were the following:
`
` “If your Regional Promoters make Youtube [sic] videos, watch over
`their channel and make sure everything on there is appropriate”;
`
` “Provide weekly updates with Continental Promoter (i.e. events,
`overall numbers up or down, Issues, [sic] and so on)”;
`
` “Get in touch with all your regional [promoters] and guide them if
`they need any help”;
`
` “The development fund you are receiving is for bitconnect
`community development and marketing purpose. You can use some
`part of development fund for your personal use”; and
`
` “When you sell your development fund, make sure you are not selling
`all fund together. Sell small amount through out week [sic].”
`
`80.
`
`Among the rules for regional promoters were the following:
`
` “Verify with your Top Promoter before you make Bitconnect
`information public”;
`
` “Be available to the community to answer questions. (Email, Skype,
`Youtube [sic])”;
`
` “Check in with your Top Promoter daily for news, updates,
`projects”; and
`
` “You will follow orders and work given by your top promoters.”
`
`81.
`
`In October 2017, the BitConnect Founder organized the Pattaya Event, a black-tie
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`affair recorded and publicly posted on YouTube, and advertised on the BitConnect Website as an
`
`opportunity for attending investors and promoters to “hear and learn from our top promoters as we
`
`award and recognise them for their success.”
`
`82.
`
`At the Pattaya Event, teams of promoters took turns taking the stage to give
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`inspirational speeches and testimonials about their success with BitConnect, and BitConnect gave
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`awards of cash and luxury cars to recognize the performance of several top promoters.
`
`
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`Case 1:21-cv-04791 Document 1 Filed 05/28/21 Page 17 of 39
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`83.
`
`In November 2017, Jeppesen arranged to have banners and signage bearing the
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`BitConnect logo made and supervised the set-up and staffing of BitConnect’s booth at the
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`Blockchain Expo.
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`84. While manning the booth, Jeppesen gave interviews to Lending Program investors
`
`and prospective investors and answered questions about BitConnect.
`
`85.
`
`The BitConnect Founder, the United States National Promoter, and Defendants
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`appeared at the BitConnect booth during the Blockchain Expo, where they mingled with Lending
`
`Program investors and prospective investors.
`
`86. While they were in Santa Clara, Brown, Grant, Maasen and Noble attended severa