Bitconnect Appeal Ruling Has Implications for US Influencers

The 11th Circuit Court of Appeals recently overturned a trial ruling related to the Bitconnect case that could have some significant implications for U.S.-based DeFi and crypto influencers.

Anyone who’s been in the space for more than a few years is almost certainly familiar with the Bitconnect Ponzi scheme that blew up in early 2018. For the uninitiated, Bitconnect was an obvious Ponzi scheme shilled by a number of crypto influencers on YouTube, Twitter, and elsewhere on social media. A very large number of users in the space quickly recognized Bitconnect as a potential scam, as it promised astronomical daily interest rates that were totally unsustainable. Still, a number of investors were lured in with the promise of big returns via a trading bot. Spoiler alert: there was no trading bot, and everyone “technically kinda lost their money”.

At issue in the appeal was whether or not marketers of the token could be held liable for losses incurred by investors. At trial, it was ruled that marketers could not be found liable because they didn’t shill the token to specific people, only a generalized audience via social media. In the appeals court’s ruling, Circuit Judge Grant noted that neither the relevant law - the Securities Act, nor legal precedent justified the original ruling made at trial. First, the Securities Act does not exempt mass solicitations of securities, and so arguing that marketers of Bitconnect couldn’t be held liable just because they weren’t targeting specific individuals wasn’t grounded in law. Second, the court rightly noted that making a sales pitch for a security online via a YouTube channel, for example, is simply an updated means of something securities promoters have done for years.

So what does this mean? First, this could spell disaster for former promoters of the scam, as investors may seek to recoup losses from those who promoted it to their audiences through legal action. High-profile promoters of the BCC token could be sued, either by individual investors or by a group working in concert. Second, the ruling has some much broader implications. The court decision makes clear that U.S.-based influencers can be held liable for shilling scams that result in investors incurring losses.

Now, anyone familiar with crypto Twitter can immediately understand the implications of this. Increasingly, influencers are being called out for not disclosing that they are accepting payment for the promotion of specific tokens or NFTs. Twitter user @zachxbt has authored a number of highly impressive Twitter threads, compiled with damning evidence of a number of different influencers engaging in this kind of potentially unlawful activity.

Prominent crypto lawyer Stephen Palley noted the implications of the reversal for U.S.-based influencers, pointing out that these users should really exercise caution when producing this kind of content, but especially so in light of the ruling.

Whether or not this latest ruling in a longstanding and prominent case of fraud in crypto has any broader effect is yet to be seen. It is clear, however, that courts do not see mass-shilling as some catch-all to escape liability for promoting securities. With respect to DeFi and NFTs in particular, it appears a number of young and enthusiastic U.S.-based promoters need to think long and hard about the implications of some of their actions, as well as how to produce content that stays within the bounds of U.S.-securities law.