Texas banking regulators booted a so-called cryptocurrency “bank” from operating in the Lone Star State as such, saying the entity violated regulations and mislead people to believe it performed as a traditional financial institution.
The Texas Department of Banking announced Friday a Cease and Desist Order went into effect against AriseBank, banning the cryptocurrency operator from doing business in the state as currently constituted. Banking Commissioner Charles G. Cooper found that AriseBank violated Texas Finance Code Chapter 31 by using the term “bank” in its name and marketing materials which implied the cryptocurrency company was a consumer bank. AriseBank described itself in press releases as a “decentralized bank.”
The order, served on January 5, called for AriseBank to stop misleading Texans. It also stated that AriseBank ‘s website claimed to have locations in Dallas; Dubai, AE; and Zug, Switzerland. However, the Texas Department of Banking pointed out that AriseBank was not chartered or authorized to operate in the state. Also, it was not supervised or registered with any Texas or federal regulatory agency. The state demanded AriseBank clearly disclose that they do not offer their services to Texas consumers.
Texas Finance Code Chapter 35 authorizes the banking commissioner to issue a cease and desist order when there is a credible reason to believe an individual engages in or is likely to engage in an “unauthorized activity.” It also allows a respondent to appeal by submitting a written request to the commissioner 21 days regulators serve the order. AriseBank did not file an appeal. Thus, the order became final and non-appealable on January 26. The state filed the order against AriseBank, founder Jared Rice Sr. and two cohorts.
One week earlier, AriseBank touted itself as the first crypto platform to purchase two traditional banks, allowing the company to offer customers FDIC-insured accounts and transactions. AriseBank also asserted it raised $600 million within a few weeks through an initial offering that included the “bank’s” AriseCoin cryptocurrency. However, American Banker reported within days these claims fell apart, first citing the finalization of the Texas cease and desist order. Then, Rice asserted the FBI raided his home and the Securities and Exchange Commission seized all of AriseBank’s assets. Additionally, the FDIC told the banking trade paper it never received any applications from AriseBank.
Texas was the first U.S. state to issue an administrative order on cryptocurrency investments, according to the state’s securities board. On December 20, Texas Securities Commissioner Travis J. Iles filed an Emergency Cease and Desist Order against USI-Tech Limited, a Dubai-based operation that promised low-risk, triple-digit returns from investments tied to Bitcoin mining. Iles addressed concerns that USI-Tech told potential investors they could pocket more money, up to 35 percent commissions, through its “unique referral marketing plan” by convincing others to invest in the company’s bitcoin platform. The order stated USI-Tech did not inform investors of the danger of commissions paid from referrals. It noted the company failed to disclose information that investors needed to make informed decisions such as costs of mining bitcoins, whether USI-Tech successfully mined bitcoins, the terms of their contracts and an explanation of the company’s “non-exclusive interest” in mining contracts, plus data that showed their financial condition. The order indicated USI-Tech sales agents solicited investors in dozens of Texas cities via online marketplaces like Craigslist and YouTube, even though the crypto company’s marketeers and the investment they peddled were not registered by the state.
On January 4, the Texas State Securities Board banned British-based BitConnect from conducting fraudulent business in the state. The bitcoin operator claimed a market value of $4.1 billion for its cryptocurrency coins one day earlier. Although BitConnect’s investments were considered securities, the company was not registered or registered to sell securities in the state as required by the Texas Securities Act and State Security Board Rules and Regulations. BitConnect disclosed virtually no information about its principals, financial condition, or strategies used for earning investor profits. It provided no physical company address in England. BitConnect recruited its sales force called “affiliates” through online ads, providing them with marketing materials and online presentations. They paid commissions for referrals that resulted in BitConnect investments. The company also targeted Texas prospects via social media platforms, websites, and Craigslist.
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