On January 30, 2018, Chief District Judge Joseph McKinley, Jr. of the U.S. District Court for the Western District of Kentucky signed a temporary restraining order (TRO) freezing the assets of BitConnect, a now-defunct cryptocurrency exchange and lending service. The TRO will expire on February 13, 2018.
In addition to granting the plaintiff's motion for the TRO, the Court ordered the following:
"Defendants, Bitconnect International, PLC, Bitconnect LTD and Bitconnect Trading, LTD, and Ryan Maasen shall within ten (10) days of the entry of this Order disclose (a) all Bitcoin and other cryptocurrency wallet addresses, (b) all cryptocurrency trading account addresses, and (c) the identity of the holder/owner of any wallet or cryptocurrency address to which Defendants have transferred any Bitcoin or other cryptocurrency in the past 90 days, so that these assets can be monitored and traced."
Furthermore, the defendants were barred from moving any assets – it appears, cryptocurrency or otherwise – "unless specifically allowed by this Court."
Disclosure of the wallet addresses would allow the plaintiff and the Court to ascertain which assets the company still possesses and whether those assets were transferred to their rightful owners or directed inappropriately.
A wrinkle in the Court's order is that it essentially requires direct cooperation from BitConnect and its operators. There is no third party to notify (banks, brokers, etc.), so recourse in the event of non-compliance might prove difficult.
The lawsuit filed by Brian Paige, a resident of Kentucky and BitConnect customer, is the second class action case brought against BitConnect. Paige alleges that BitConnect was both a pyramid scheme and a Ponzi scheme. Acknowledging the high probability that these allegations are correct, the Court made several findings:
- The plaintiff and class showed a "strong likelihood of success on the merits of their claims" regarding violations of federal securities law, Kentucky security law, breach of contract, and fraudulent inducement.
- The plaintiff established that the rights of the plaintiff and the class will be "immediately and irreparably harmed absent a temporary restraining order." The Court notes, that without the TRO, the plaintiff "may be unable to recover for his equitable claims."
- The TRO would "present the status quo" and allow the Court to "make a meaningful ruling on the merits of this case."
- The TRO is "in the public interest" because of the desires to prevent "massive consumer fraud and other securities violations described in the Class Action Complaint."
- The TRO is entered "without notice to Defendants."
- Lastly, due to the "strength of Plaintiff's case," the Court determined that security is not required at this time, per Fed. R. Civ. P. 65(c).
Earlier this month, BitConnect closed down its operations. The company listed reasons that included "continuous bad press" and DDoS attacks, as well as cease and desist letters from the Texas State Securities Board and the North Carolina Secretary of State Securities Division.
"Closing the lending and exchange platform doesn't mean that we will stop supporting BitConnect coin," the company wrote in an announcement on January 16, 2018. "Closing the lending platform will allow BitConnect to be listed on outside exchanges giving more options for trading."
However, shortly thereafter, it appears that social media postings and instructional videos were hastily removed.
Since BitConnect ceased its services, the price of the BitConnect coin (BCC) – not to be confused with bitcoin cash (BCH) – has fallen sharply. Near the start of January 2018, BitConnect coins traded for more than $400 apiece. At the time of publication, BCC trades for just $8 per coin. The vast majority of BCC volume is being transacted on HitBTC, a cryptocurrency exchange based in Europe.