A class action lawsuit has been filed against BitConnect with the Southern District Court of Florida on Jan. 24 over allegations that the lending and exchange platform issued cryptocurrency tokens (BitConnect Coins) that were unregistered securities part of a Ponzi scheme.
BitConnect is being accused of violating the Securities Act for issuing unregistered securities, according to CoinDesk.
On Jan. 16 BitConnect announced on its website that it was closing its platform following “continuous bad press” and “two Cease and Desist letters, one from the Texas State Securities Board, and one from the North Carolina Secretary of State Securities Division.”
The lending platform also claimed that “outside forces” conducted DDos attacks on the platform several times and “made it clear” that they would continue.
After the cease and desist orders the value of BitConnect Coin plunged by 90 percent.
The six individuals that filed the suit in Florida said their loss totaled $771,000.
BitConnect a Ponzi scheme
Users of the platform would loan their cryptocurrency to the company. They would then receive returns depending on the length of the loan.
Ethereum founder Vitalik Buterin along with many other experts in the crypto community had previously warned the community about the platform, calling BitConnect a Ponzi scheme – namely because of its multilevel marketing structure.
The crypto community has suspected that the platform was using newly pledged loans to pay out existing loan interest.
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