A current staple of the Main Street investor focused Enforcement Division is the offering fraud. There the promoters typically offer the unsuspecting public deals that are too good to be true with guaranteed returns or other similar features that attract largely unsophisticated investors. A variation of these offerings is the multi-level pyramid scheme in which investors are recruited to market interests in the organization for “can’t miss” profits. Unfortunately, in each type of scheme the only person who “can’t miss” is the promoter who ends up with all the money. The Commission’s latest version of these schemes is SEC v. Millan, Civil Action No. 1:20-cv-06575 (S.D. Fla. Filed August 18,, 2020).
The action centers on a nationwide offering of investments in AirBit Club that rewarded those who recruited others with profits supposedly paid from high returns tied to an algorithmic digital asset day-trading program. Promoters targeted LatinX and Spanish-speaking communities. Named as defendants are Cicilia Millan and Margritra Cabrea. Each Defendant is an AirBit promoter and a member of its Master Council.
AirBit is an investment club controlled by Pablo Rodrigues and Gutemberg Santos. It has no formal legal existence. The firm operates as an international multi-level marketing operation and a cryptocurrency trading platform. Messrs. Rodrigues and Santos settled Commission charges of fraud and selling unregistered securities in connection with a pyramid scheme approximately 3 years ago. SEC v. Rodriguez, Civil Action No. 8:17-cv-00375 (C.D. Cal.). AirBit was then created.
AirBit offered seven investment options to investors based on the amount invested. The minimum was a $1,000 investment and the top was set at $126,000. Investors were promised daily returns of $7 to $13 for every $1,000 invested. Those returns could be paid in crypto currency or U.S. dollars. The returns supposedly came in part from investing 52% of investor funds in a digital asset trading program. Returns were also supposedly generated from the multi-level marketing compensation program funded by the remaining 48% of the investor funds.
The AirBit compensation plan actually paid investors bonuses for recruiting others, according to the complaint. The payments came from a variety of bonuses tied to the cost of the package sold.
Defendants Millan and Cabrea were each members of the AirBit Master Counsel, essentially a group of the top promoters. Defendants regularly promoted AirBit, took investment orders and were paid with investor cash. Since the interests sold were securities and neither Defendant is registered with the Commission, each was acting as an unregistered broker. The complaint alleges violations of Exchange Act Section 15(a). The case is pending. See Lit. Rel. No. 24870 (August 18, 2020).