U.S. Regulators Issue Cease-and-Desist Orders Against South African Firms Over Cryptocurrency Scheme

U.S. Regulators Issue Cease-and-Desist Orders Against South African Firms Over Cryptocurrency Scheme

The Texas State Securities Board (TSSB) and the Alabama Securities Commission (ASC) have issued emergency cease-and-desist orders to South African firms accused of operating a fraudulent cryptocurrency credit card scheme. Named in the orders are Liquid Gold Trust, Liquidity Card Solution LLC, Liquidity Global Card Solution, and their CEO, Lance Angus Jerrard.

The orders allege that these entities promoted a deceptive investment opportunity involving a so-called “Liquidity Card” that purportedly allowed users to spend stablecoin profits tax-free. Regulators claim the scheme relied on recruiting new investors to sustain its operations.

The Alleged Cryptocurrency Scheme

The Liquidity Card was marketed as a Mastercard-compatible debit card that could work with popular stablecoins, including USD Coin (USDC), TrueUSD (TUSD), and Paxos Standard (PAX). The card was touted as a tool for:

• Spending Crypto Profits: Users could allegedly avoid taxes when converting stablecoins into fiat currency.
• Earning Residual Income: Investors were promised profits derived from cardholder fees.

However, regulators argue the scheme was fraudulent, requiring the recruitment of new cardholders to sustain its operations.

The Investment Structure

The accused entities proposed selling “portions” in their global project partnership to fund the Liquidity Card’s marketing campaign. Each portion was priced at $1,150, with investors promised residual income from the card’s fees.

Key details of the alleged investment model:

• 8,400 Portions for Sale: The scheme aimed to sell 8,400 investment portions globally.
• Aggressive Growth Claims: The companies claimed they would recruit 8 million cardholders within 36 months.
• Questionable Tax Avoidance Claims: Promoters emphasized tax-free conversions of crypto profits, which regulators flagged as misleading.

Regulators’ Concerns

The cease-and-desist orders highlight several red flags:

1. Ponzi-Like Structure
   The system’s success depended on recruiting new cardholders, which regulators argue is a hallmark of Ponzi schemes.

2. Deceptive Tax Avoidance Claims
   Promoters falsely suggested the Liquidity Card could help users evade taxes on cryptocurrency transactions.

3. Unregistered Securities
   The investment portions offered by the Liquidity companies were unregistered securities, violating state and federal laws.

4. Unverified Promises
   Promoters made unrealistic claims about the card’s functionality, scalability, and potential profitability.

Statements from Regulators

The Texas Securities Board explained the critical flaw in the system:

“The system only works if the Liquidity companies can recruit new cardholders. They need money to recruit these cardholders.”

The Alabama Securities Commission echoed similar concerns, emphasizing the urgency of halting the scheme to protect investors.

The Bigger Picture: Cryptocurrency Scams on the Rise

This case is part of a broader trend of fraudulent schemes targeting cryptocurrency investors. As the digital asset market grows, scammers are exploiting the lack of understanding and regulatory clarity to lure unsuspecting participants.

Common Features of Crypto Scams:

• High-Return Promises: Unrealistic guarantees of substantial profits.
• Complex Structures: Schemes involving technical jargon to confuse investors.
• Recruitment-Based Models: Reliance on new investors to sustain operations.

What Investors Should Watch For

To avoid falling victim to similar scams, investors should:

• Verify Claims: Be skeptical of tax avoidance promises or guaranteed profits.
• Check Registration: Ensure the investment is registered with relevant regulatory bodies.
• Understand the Model: Avoid schemes that rely on recruitment or lack transparency.

Conclusion

The cease-and-desist orders against Liquid Gold Trust and its affiliates underscore the vigilance of U.S. regulators in combating cryptocurrency fraud. The case highlights the importance of due diligence for investors and the need for stricter oversight in the fast-evolving digital asset space.

As cryptocurrency adoption grows, so does the responsibility of investors to educate themselves and recognize potential red flags. Regulators will continue to play a crucial role in protecting market participants and ensuring the integrity of the cryptocurrency ecosystem.

To learn more about the innovative startups shaping the future of the crypto industry, explore our article on latest news, where we delve into the most promising ventures and their potential to disrupt traditional industries.