PlexCorps’ Facebook accounts instrumental in furthering ICO scam – US Court concludes

There has been substantial chatter about Facebook’s policy regarding cryptocurrency advertising. On the face of it, it is all about what the social network and its team decide – if they allow such ads, the people and entities behind them may safely continue to do what they are doing. However, the most recent developments in a cryptocurrency fraud case launched by the United States Securities and Exchange Commission (SEC) show that accounts to Facebook that are used to promote cryptocurrencies, initial coin offerings (ICOs) and related activities, may be important in prosecution of fraud cases.

As FinanceFeeds has reported, in December 2017, the Commission brought an emergency action against PlexCorps (a/k/a and d/b/a PlexCoin and Sidepay.ca), Dominic Lacroix, and Sabrina Paradis-Royer. The SEC generally contends that the defendants unlawfully participated in a fraudulent fundraising scheme to amass more than $15 million from tens of thousands of investors who purchased certain “cryptocurrency” called “PlexCoin Tokens,” or PlexCoin.

On Thursday, August 9, 2018, an order issued by Judge Carol Bagley Amon of the New York Eastern District Court denied the defendants’ motion to dismiss for lack of personal jurisdiction.

The Order, seen by FinanceFeeds, notes that the contacts that the defendants had in the United States are sufficient for the SEC case to continue in New York.

PlexCorps and the individuals behind it employed numerous online communications to solicit potential buyers of PlexCoin. During its investigation, the SEC discovered that the defendants relied heavily on the United States-based Facebook. The agency found at least three relevant Facebook accounts.

• One account allegedly announced the ICO and Whitepaper and posted several statements about PlexCoin, the ICO, and the development team.
• Another Facebook account allegedly described a payment method for purchasing PlexCoin, future PlexCoin-related projects, and the “tradability of PlexCoin Tokens on digital asset exchanges.”
• A third Facebook account touted PlexCoin and sold related t-shirts.

In addition, the SEC provided two sworn declarations from two PlexCoin purchasers in the United States who stated that they learned about the sale from the Facebook accounts.

The agency also proffered a sworn declaration by Antoine Richard, a former PlexCoin employee who managed social-media communications for PlexCoin during most of the pre-sale and sometimes communicated with United States-based individuals about the assets. Richard declared that “everyone involved with the PlexCoin project understood that people from all over the world purchased PlexCoin, including from the United States.”

The Facebook accounts were integral to finding investors and directing statements at them to encourage them to participate in the alleged fraudulent scheme. The accounts announced, among other things, details of PlexCoin, the ICO, the Whitepaper, and the development team, the Judge noted in her Order.

“In light of these messages and the material PlexCoin information they contain, the Facebook accounts were instrumental to the Individual Defendants in furthering their alleged fraudulent scheme”, the Judge said.

The Whitepaper emphasizes that PlexCoin’s “marketing strategy” was to “focus.. efforts on Facebook,” and that Facebook was the defendants’ “main ally” in making PlexCoin known to the “highest number of people possible.”

According to the Judge, the record reasonably shows that Lacroix and Paradis-Royer “knowingly used Facebook marketing to disseminate their messages into the United States – that is, they continuously and deliberately exploited the United States market of Facebook users”.

The Court recognizes that merely creating a Facebook account does not support jurisdiction in all cases. However, the individual defendants’ conduct is far more extensive.

Thus, for instance, the defendants used a number of websites to solicit US customers. In light of the interactivity of www.plexcoin.com and Lacroix’s intentional enticement of United States-based investors, Lacroix established significant Internet contacts with the United States.

Furthermore, around the start of the ICO pre-sale (August 7, 2017) Lacroix and Paradis-Royer, who claim to be residents of Canada, took a trip to Boston. In his declaration, Lacroix emphasized that the trip was for “leisure”. However, the SEC provided evidence indicating that the trip was related to PlexCoin.

Finally, the Court notes that the defendants employed several United States-based payment services for the pre-sale: PayPal, Square, Stripe, and Kraken. In total, the one Paypal, two Square, and two Stripe accounts helped the defendants finalize 14,074 sales, totaling more than $3.6 million. Nearly 90% of those sales were made in United States dollars; more than 25% to United States buyers. Also, from August 17, 2017, to December 4, 2017, the two Kraken accounts received about $1.04 million in cryptocurrency from the PlexCoin ICO sales.

The Court concluded that the Individual Defendants created contacts with the United States by, among other things, doing business while traveling in the United States, utilizing United States-based payment services, and marketing their products to United States consumers via the Internet.

The case, captioned Securities and Exchange Commission v. PlexCorps (1:17-cv-07007), continues at the New York Eastern District Court.