The Texas State Securities Board recently took action against a fraudulent cryptocurrency cloud mining operation known as Arkbit Capital. The board issued a cease and desist order on May 28, accusing Arkbit of engaging in deceptive practices to carry out an alleged investment fraud.
According to the order, Arkbit had been making false claims about operating data centers in Arkansas for cloud mining various cryptocurrencies. The company promised investors daily returns of 1.6% to 2.8% for 120 days on crypto deposits ranging from $50 to $49,999. Arkbit operated under various entities such as Arkbit Capital, Arkbit Capital Holdings, ABC Holdings LLC, and ABC Mining.
The fraudulent scheme included using fake media assets, such as a video featuring a fake CEO, Delmar Estabrook, speaking at a cryptocurrency conference in Austin, Texas. State regulators found no evidence that Estabrook or Arkbit Capital had ever attended the event.
Arkbit’s payment processing was found to be facilitated through CoinPayments.Net, despite the processor’s policy banning users from the United States. The account holder for the Arkbit CoinPayments account was traced back to an individual in Hyderabad, India, rather than Arkansas as claimed.
This case is part of a larger trend of alleged crypto Ponzi schemes that regulators are actively working to shut down. In recent months, the U.S. Securities and Exchange Commission (SEC) broke up a $300 million crypto Ponzi scheme called CryptoFX, and promoters behind the collapsed IcomTech were convicted of conspiracy to commit wire fraud.
The Texas State Securities Board, along with other state regulators, continues to prioritize investor protection by taking proactive steps to combat crypto investment frauds. In 2018, the board issued an emergency cease and desist order against individuals and companies offering unregistered cryptocurrency mining investments with implausibly high annual returns.
According to Joe Rotunda, Director of the Enforcement Division at the Texas State Securities Board, combating crypto fraud requires a multi-faceted approach of enforcement actions and investor education campaigns. The goal is to prevent bad actors from exploiting emerging technologies for fraudulent schemes.