California Takes Action Against 11 Crypto Firms Allegedly Operating Like Ponzi Schemes

California’s regulator has targeted 11 crypto-related entities which allegedly violated the state’s securities laws.

The watchdog also claimed that their business model was in the manner of a Ponzi or pyramid scheme.

• The Department of Financial Protection and Innovation (DFPI), in an announcement on Tuesday, stated that while all the accused companies offered unregistered securities to customers, most sought funds from investors to conduct crypto trading on their behalf.
• Also, one of the platforms allegedly asked for cryptocurrencies to build metaverse software. Consequently, the DFPI issued a desist and refrain order to the 11 entities.
• An excerpt from the announcement reads:

“The entities are all alleged to have used investor funds to pay purported profits to other investors, in the manner of a Ponzi scheme. Furthermore, each of the entities had a referral program that operated in the manner of a pyramid scheme. The entities promised to pay investors commissions if they recruited new investors, and additional commissions if the investors that they recruited, in turn, recruited new investors.”

• Some of the companies involved in the case, which, according to the California regulator, purportedly operate crypto trading services, include Pegasus, Elevate Pass, Remabit, and World Over the Counter Limited.
• The latest action comes on the heels of an earlier desist and refrain order against cryptocurrency lender Nexo. The DFPI claimed that the company offered its Earn Interest Product account to California residents without registering it as securities.