On June 25, 2020, the U.S. Securities and Exchange Commission charged NAC Foundation, its Chief Executive Officer Marcus Andrade, and political lobbyist Jack Abramoff with conducting a fraudulent, unregistered offering of AML BitCoin, a digital asset security the defendants claimed was a new and improved version of bitcoin.
The SEC alleges that Nevada-based NAC Foundation raised at least $5.6 million from more than 2,400 investors by selling tokens that could later be converted to AML BitCoin. According to the SEC’s complaints, NAC and its CEO portrayed AML BitCoin as superior to the original bitcoin, with anti-money laundering, anti-terrorism, and theft-resistant technology built into the coin on NAC’s own “privately regulated public blockchain.” The SEC’s complaints allege that in reality none of the touted capabilities existed and the development of AML BitCoin and its blockchain was in the very early stages.
According to the SEC, NAC and Andrade falsely claimed that multiple government agencies were negotiating to use AML BitCoin, and Abramoff and Andrade falsely claimed that they were on the verge of advertising AML BitCoin during the Super Bowl in an effort to create interest in the offering, despite NAC being unable to afford the cost of the ad. Abramoff also allegedly arranged for NAC to pay for purportedly independent articles about AML BitCoin that included many of the misleading statements. The SEC further alleges that Andrade directed a market manipulation strategy to boost the token’s trading volume and price and diverted approximately $1.1 million from the offering for his personal use.
The SEC’s complaints, filed in the Northern District of California, charge NAC, Andrade, and Abramoff with violating the antifraud and securities registration provisions of the federal securities laws, and also charge Abramoff with broker-dealer registration violations. The SEC seeks permanent injunctions, disgorgement, and civil penalties, as well as injunctions prohibiting NAC and Andrade from participating in future securities offerings, and barring Andrade from serving as a public company officer or director. The SEC reports that Abramoff has agreed to a settlement imposing permanent and conduct-based injunctions, officer-and-director, industry, and penny stock bars, disgorgement of the $50,000 in commissions he received, plus prejudgment interest of $5,501, and reserves the issue of civil penalties for further determination by the court upon motion of the SEC. The settlement is subject to court approval.
The U.S. Attorney’s Office for the Northern District of California announced parallel criminal actions. Abramoff was charged in a criminal information with conspiracy to commit wire fraud and violating the Lobbying Disclosure Act. According to the Department of Justice, this is the first ever known prosecution of a lobbyist for a criminal violation of the Lobbying Disclosure Act. Abramoff has reportedly agreed to plead guilty. In the connected case, a federal grand jury in San Francisco indicted Andrade for wire fraud and money laundering.