A bitcoin mining business will pay $1 million to resolve claims made by Massachusetts securities regulators that the bitcoin company engaged in an unlicensed securities offering.
In a consent decree, U.S. Data Mining Group consented to a settlement with the Massachusetts Securities Division. According to the securities commission, the business failed to register its shares during its fundraising efforts and refused to mention to investors that two of its promoters had earlier breached federal securities rules. “When they acquired shares of the firm in 2021, Massachusetts investors were not adequately informed or advised of the participation of these guys and others,” the regulator said in a release Tuesday.
According to the Securities Division, DMG obtained roughly $25 million in Series A funding in March 2021 but failed to register that offering with the Securities Division. According to the order, Massachusetts citizens invested a total of $3.5 million.
DMG was cognizant, at least since December 4, 2020, that it couldn’t depend on registration exemptions, according to the regulator. According to the consent judgment, DMG specifically stated in a promissory note at the time that it couldn’t exploit certain registration exemptions due to the backgrounds of its promoters. However, the regulator stated that this was not disclosed to investors when DMG solicited cash in a Series A fundraising.
The order said that “DMG did not supply the plain and unambiguous wording included in the December 4, 2020, promissory note.” The regulator said that “instead DMG provided an ambiguous disclosure schedule listing [the promoters] and offering hyperlinks to the [US Securities and Exchange Commission’s] action” against the promoters and their prior firm, the Honig Group.
The SEC accused several individuals of a “pump-and-dump” operation in 2018, many of whom went on to assist building DMG. According to the SEC, the defendants reportedly established shell companies to conceal their stock ownership and hired promoters to exaggerate the worth of target firms, then organized to exchange shares amongst themselves to give the appearance that share prices were growing.
According to the settlement, two of the defendants were eventually ordered to pay over $1 million in disgorgement and a $160,000 civil penalty in connection with the SEC’s claims. A court injunction also barred them from violating securities laws in the future.
DMG eventually offered its Series A investors rescission, in which they may receive their initial investment plus interest. According to the order, the Massachusetts investors elected not to accept that option.
The Massachusetts securities regulator warned investors about the risks of cryptocurrency-related investments. “I can’t emphasize enough how important it is to know who you’re working with when investing your money,” he stated. “This is especially crucial when your investments entail bitcoin mining and cryptocurrencies, which have become popular platforms for fraudsters to deceive unsuspecting investors in recent times.”
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