A Dallas-based company and its founders have agreed to pay back more than $10 million to thousands of investors they convinced to buy into cryptocurrencies that later crashed, according to federal regulators.
The Securities and Exchange Commission announced the preliminary settlement Thursday with Dallas-based BitQyck Inc. and founders Bruce Bise and Samuel Mendez. Without admitting guilt, Bise and Mendez consented to pay back $890,000 and $850,000, respectively, while BitQyck will return $8.4 million.
BitQyck raised more than $13 million from 2016 to earlier this year from 13,000 investors in 45 states for the digital tokens, the SEC said in a civil lawsuit that led to the settlement.
But most of the value disappeared as the Bitqy and BitqyM cryptocurrencies tanked. A state complaint said the men told investors the $0.02 cryptocurrency could soar in value to $3 per token, but the cryptocurrency is now virtually worthless.
“Because digital investment assets represent a new and exciting technology, they can be very alluring, especially if investors believe they are getting in on the ground floor and will own part of the operations,” said David Peavler, director of the SEC’s Fort Worth regional office.
Attempts to reach BitQyck were unsuccessful.
BitQyck created a cryptocurrency firm and allegedly promised tiny shares in its stock in the form of the BitQy and BitQyM digital currencies, the lawsuit said. The company operated its own private market for the cryptocurrency.
The lawsuit said BitQyck rewarded the cryptocurrency owners with bonuses for referring new members, which Peavler said makes it a “Ponzi scheme.” The company also allegedly told investors their money was going to be used to mine more cryptocurrency benefiting from cheap electricity, which it never had access to.
BitQyck was the subject of an emergency cease and desist order from the Texas State Securities Board in 2018. Texas officials then accused a California man, Mark Steven Royer, of promoting the digital currency investments as high-return, low-risk investments offering profits of 10% to 20% a week.
Royer didn’t challenge the order and the state didn’t seek further action, a spokesman for the agency said.
According to the Texas State Securities Board, an Arizona court sentenced Bise to seven years in prison for check fraud in 1997 and Mendez was disbarred as a lawyer in California in 1995.
Texas has been among the most active states in cracking down on cryptocurrency investment schemes, issuing enforcement actions against 25 companies since 2017.