Challenged Crypto Schemes: SEC Takes Action Against Major Fraud Cases

If you have been a victim of investment fraud, contact an experienced investment fraud attorney today. The recent wave of challenged crypto schemes highlights the growing risks of fraud in digital assets and the Securities and Exchange Commission’s (SEC) increasing efforts to hold wrongdoers accountable.

The Legal Standard: Rule 10b-5 Violations

In a civil lawsuit based on a violation of the anti-fraud provisions of the Securities Exchange Act of 1934, also known as a Rule 10b-5 violation, plaintiffs must prove the following by a preponderance of the evidence:

The defendant used an instrumentality of interstate commerce in the securities transaction.
The defendant made a false representation of a material fact or omitted a material fact.
The defendant acted knowingly or with severe recklessness.
The plaintiff justifiably relied on the defendant’s conduct.
The plaintiff suffered damages as a proximate result of the wrongful conduct.

These elements form the foundation of many of the SEC’s crypto fraud cases.

Case 1: BKCoin Management and Kevin Kang

The SEC charged Miami-based BKCoin Management LLC and principal Kevin Kang in SEC v. BKCoin Management, LLC, et al., No. 23-cv-20719 (S.D. Fla. Feb. 23, 2023).

BKCoin raised about $100 million from at least 55 investors.
Funds were misused for Ponzi-like payments and personal expenses, including vacations, tickets, and an NYC apartment.
BKCoin misrepresented that it had an audit opinion from a “top four auditor,” which was false.

The SEC obtained an asset freeze, appointment of a receiver, and emergency relief against Kang and BKCoin.

Case 2: Green United and Its Founders

The SEC sued Green United, LLC, founder Wright W. Thurston, and promoter Kristoffer A. Krohn in SEC v. Green United, LLC, No. 2:23-cv-00159 (D. Utah Mar. 3, 2023).

Green United raised $18 million selling “Green Boxes” and “Green Nodes.”
Investors were told they mined a new token called GREEN on a “Green Blockchain.”
In reality, the devices mined Bitcoin, and GREEN tokens were later created and distributed to give a false appearance of legitimacy.
Krohn, a repeat SEC violator, promoted these schemes with false claims of returns.

Case 3: FTX Engineer Nishad Singh

The SEC charged Nishad Singh, FTX’s former Co-Lead Engineer, in SEC v. Singh, No. 23-cv-1691 (S.D.N.Y. Feb. 28, 2023).

Singh created software code that diverted FTX customer funds to Alameda Research, despite false assurances of platform safety.
He withdrew $6 million for personal use, including a luxury home and donations.
Singh played a key role in the multiyear fraud scheme that contributed to FTX’s collapse.

Case 4: Terraform Labs and Do Kwon

The SEC sued Terraform Labs and its founder Do Kwon in SEC v. Terraform Labs PTE Ltd. and Kwon, No. 23-cv-1326 (S.D.N.Y. Feb. 16, 2023).

Terraform sold unregistered securities like UST and LUNA.
The company misrepresented the stability of these tokens, leading to catastrophic investor losses when values collapsed.
Billions of dollars in value were wiped out, fueling further scrutiny of the crypto industry.

Key Takeaways from Challenged Crypto Schemes

Fraud in crypto investments is widespread – Ponzi-like payments, asset diversion, and fabricated returns are common tactics.
Material misrepresentation is central – False claims about audits, token stability, or returns often form the basis of Rule 10b-5 violations.
The SEC is aggressive – These lawsuits show the SEC’s willingness to pursue high-profile crypto players.
Investors face serious risks – Crypto assets remain highly volatile and susceptible to fraud.

Protect Yourself Against Crypto Fraud

The recent challenged crypto schemes involving BKCoin, Green United, FTX, and Terraform Labs show how fraud in digital assets can devastate investors.

If you lost money in a crypto scheme, consult an experienced securities fraud attorney. Legal professionals can help evaluate your claim, recover losses, and protect your rights.

For more on crypto enforcement actions, visit the SEC’s Crypto Assets and Cyber Unit.

FAQs About Challenged Crypto Schemes

1. What are challenged crypto schemes?

Challenged crypto schemes are cryptocurrency investment programs targeted by the SEC for fraud, misrepresentation, or violations of securities laws. They often involve false promises of returns, Ponzi-like payments, or unregistered securities.

2. How does the SEC investigate crypto fraud?

The SEC investigates crypto fraud by reviewing investor complaints, analyzing financial records, and examining whether the scheme violated the Securities Exchange Act of 1934 or Rule 10b-5. The agency may also freeze assets and appoint receivers.

3. Why are crypto investments risky?

Crypto assets are highly volatile and often lack transparency. Fraudsters exploit these risks by making misleading claims about token stability, audits, or guaranteed returns. Investors can lose significant value quickly.

4. What are common signs of a crypto fraud scheme?

Promises of guaranteed or unusually high returns
Lack of audited financials or regulatory filings
Unregistered securities offerings
Ponzi-like payments made from new investor funds
False claims about blockchain technology or token mining

5. Can I recover losses from a crypto fraud scheme?

Yes. Victims may recover losses through a Rule 10b-5 lawsuit or other legal claims. An experienced investment fraud attorney can help file claims, pursue compensation, and represent investors in court.

6. What should I do if I suspect crypto fraud?

If you suspect fraud, stop investing additional money, gather documentation (emails, contracts, payment records), and contact a securities fraud lawyer immediately. You can also file a complaint with the SEC.

Challenged Crypto Schemes: Major SEC Fraud Lawsuits Against BKCoin, Green United, FTX, and Terraform