Increasingly, regulators across the world are clamping down on fraudulent digital currency platforms that were previously able to exist without oversight. DavorCoin is the newest in a line of ‘cryptocurrency companies’ to receive severe warnings from U.S. regulators.

BitConnect, a similar digital currency ‘lending’ platform, made headlines when it announced the closure of the majority of its services amidst cease and desist orders and an abundance of Ponzi scheme claims. With the closure of BitConnect’s lending services, its supplementary BitConnect coins (BCC) became effectively worthless. The situation inspired a class action suit lodged against BitConnect and promoters, seeking compensation for hundreds of thousands of dollars in loss.    

Project officials reacted to the news of BitConnect’s closure on a Facebook post dated January 16th, 2018, claiming that the situation did not mirror their own.

“This does not change anything for us,” said DavorCoin. “Except that now Davor is the number one lending platform in the world!”

However, it would seem that DavorCoin’s celebration may have been cut short. On February 2nd, 2018, the Texas State Securities Board received an Emergency Cease and Desist Order against DavorCoin.

The case against DavorCoin

The Cease and Desist contains an array of alleged fraud offences in connection with DavorCoin’s offerings, and a section dedicated to the platform’s ‘misleading and deceptive statements.’

DavorCoin claims to be ‘one of the most ambitious cryptocurrency projects’. It promises a ‘monthly interest rate up to 48%,’ in an attempt to incite susceptible investors.

The platform also offers an affiliate promotion similar to BitConnect’s program. This program drew many to make Ponzi scheme comparisons during BitConnect’s heydey. DavorCoin offered ‘special bonus rates for leaders and promoters,’ inciting others to recruit new investors in exchange for monetary reward.

Differentiating scams from genuine digital currencies

It’s important to note that the Cease and Desist against DavorCoin clarifies that it is not against all digital currencies. While making a direct comparison to Ponzi schemes, Texas Security Commissioners don’t paint currencies like Bitcoin and Ethereum in the same light. In fact, the Cease and Desist explicitly illustrates ways in which DavorCoin is different from the legitimate cryptocurrency projects.

“DavorCoin represents that davorcoin [sic] is ‘a new cryptocurrency which aims to become the best alternative to current popular coins such as Bitcoin and Ethereum,’” it said. “This statement is materially misleading or otherwise likely to deceive the public because the key feature of Ethereum is its incorporation of ‘smart contracts,’ and Respondents DavorCoin is not disclosing any features that are the equivalent of such ‘smart contracts.’”

The Cease and Desist further attacks DavorCoin’s claims to be a legitimate ‘digital form of public money’. This counter-claim is due to a lack of attempt or observable plan to promote genuine adoption.

Ultimately, many within the cryptocurrency community see regulatory action against platforms like DavorCoin and BitConnect as good news. The news is undoubtedly devastating for those deceived. However, the closure of malicious schemes will help to benefit the reputation of digital currencies in the long run.

 

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