Letitia James, Attorney General for New York State, has sought a temporary restraining order, preliminary injunction and the appointment of a receiver in the case of Coinseed Inc., a company accused of defrauding customers and prevent them from accessing their cryptocurrency accounts.
Coinseed, a company that announced that consumers could invest their ‘spare currency’ (i.e. the change of rounding each purchase to the nearest dollar) or as little as $ 5 in cryptocurrency, was charged with consumer fraud. During the same period that Bitcoin saw a sharp rise in value, Coinseed saw an influx of withdrawal requests from investors looking to make gains. “Rather than converting virtual currency into fiat currency to honor these claims, the defendants first reduced the daily withdrawal limit from $ 1,000 per day to $ 250 per day, and then ultimately turned withdrawals completely off,” said the original complaint of February 17, 2021.
The Attorney General’s Office (BVG) provided a memorandum of law requesting that defendants be prevented “from engaging in ongoing fraud and dissipating investor assets.” In the original February 17, 2021 complaint filed by the BVG in New York, New York State alleged that Coinseed was acting as an unregistered commodities broker in violation of General Business Law (âGBLâ) Â§ 359- e (14) and executive law Â§ 63 (12).
According to The Block outlet, the CEO said the allegations were “full of false accusations” and that “Coinseed left NY in 2019 and we haven’t accepted any users from New York since 2018.” According to the OAG memo, the defendants carried out unauthorized transactions, placing all investor assets in virtual currencies which, at the time, were losing value, and prevented the victims from withdrawing their funds.
The note notes that âthe OAG has received over 130 complaints from investors who have lost access and control over years of investments and gains due to fraudulent conduct by defendants. Investors who a few weeks ago had portfolios worth more than $ 150,000 can no longer withdraw these gains. Additionally, the memo mentions that the defendants – without authorization – transferred the holdings of all investors into Dogecoin.
While the concentration in a cryptocurrency like Dogecoin has seen a remarkable increase, CoinSeed is accused of not allowing any of its customers to trade on their accounts, withdraw their funds or avoid losses. Therefore, it is not clear whether customers would even have access to or could cash out any of the winnings in what is already an unauthorized purchase of a cryptocurrency.
Along with the preventive steps of a temporary restraining order and preliminary injunction, the OAG asked the court to appoint a receiver to prevent any further dissipation of client funds. Michelle Gitlitz, Global Head of Blockchain & Digital Assets at Crowell & Moring, has been appointed. Crowell & Moring, LLP is described by the BVG as a “law firm with experience in virtual currency, blockchain technology and receivership.”
The BVG explains in the complaint that under GBL Â§ 353-a, âsuch a receiver will take possession of all or part of these assets, books of account and documents relating to them and will liquidate these assets or part of them. here for the benefit of all. the persons intervening in the said action and establishing an interest in such property. ”
The receiver would seek out all property derived by the defendants through their fraudulent practices as well as all property that has been mixed with the property of the defendants. Defendants should provide the receiver with all books of account and related documents.
Ultimately, it seems clear from this follow-up to the initial complaint against CoinSeed in February that New York is a state with extremely low tolerance for any harm to consumers caused by its residents. Additionally, while mentioning that the OAG’s office has been working with the SEC on the matter, New York is clearly taking the lead at the state level, rather than the federal level, to protect its consumers from harm. .
Although the case still only alleges these CoinSeed actions, the OAG said it is very confident that there will be a result in court that will ultimately conclude that this crypto exchange is guilty of the charges.
To note: As CEO of a 501 (c) (3) nonprofit called Value Technology Foundation, a think tank that focuses on Bitcoin, cryptocurrency, and distributed ledger technology in Washington DC, donations have been received from Crowell & Moring LLP, the receiver proposed by the OAG.