Legal Warning: The SEC is Scrutinizing Crypto Multi-Level-Marketing Companies

June 27, 2019

Did a crypto-backed, multi-level-marketing company abscond with millions of dollars? According to the Securities and Exchange Commission: Yes. And the agency filed a lawsuit with a California court.

The Basics: SEC Lawsuit against MLM Cryptocurrency

Plaintiff: The U.S. Securities and Exchange Commission (SEC)

Defendant: Daniel Pacheco, the man behind IPro Solutions LLC and IPro Network LLC

Claim Synopsis: Authorities allege Pacheco was the “mastermind” behind a supposed pyramid scheme that peddled educational materials on “how to establish and operate a successful e-commerce business.” In addition to the program, Pacheco purportedly allocated profits for personal use inappropriately — which the SEC argues amounts to fraud and securities law violations.

IPro Details: Pacheco’s company charged $50 for the right to be a “sales associate” for the IPro program, and he promised monetary bonuses to sales associates. Consequently, the two ways to make money with IPro were to:

  1. Amass sales associates beneath you; or
  2. Use the materials to start an e-commerce company.

Participants entrenched in the $50 promotional program could opt for PRO Currency, a cryptocurrency that the company touted as a holding that could rise in value.

IPro Success: Between 2017 and 2018, IPro reportedly amassed 20,000 members and $26.5 million. Additionally, its token got listed on several exchanges.

Why the SEC has a Problem with this Multi-Level Marketing Cryptocurrency Company

The SEC has lobbed several accusations against Pacheco and IPro. For starters, the agency believes his company was a pyramid scheme.

Additionally, the suit contends that Pacheco spent $18 million on outside expenditures (e.g., $2.5 million house, $150,000 Rolls Royce, nearly $2 million to an entity attached to his daughter) but failed to pay promised commissions and bonuses to IPro members. Moreover, the SEC contends that the agreement to become an authorized IPro sales associate amounted to an investment contract, and Pacheco failed to complete the proper paperwork.

As evidence, in addition to paperwork, the SEC used video footage of Pacheco expatiating on PRO Currency’s potential as related to Bitcoin.

Probable Next Steps: “Relief Defendants”

Pacheco’s business eventually went bottoms up, but that isn’t stopping authorities from pursuing the matter. Judging from available information, the SEC will likely include “relief defendants” in the case. These are people who appear to have blatantly and directly profited from ill-gotten gains. Authorities will likely ask: “Why did he transfer over a million dollars to his daughter? Moreover, was it 100 percent above board?” It’s a good reminder that sloppy loophole attempts rarely work.

Connect with a Law Firm that Understands Both Multi-Level Marketing and Cryptocurrency Economies

Many ICOs have landed in hot legal water by failing to consult a cryptocurrency lawyer. Our team of attorneys and accountants works with blockchain and digital currency businesses on everything from tax positioning to litigatory representation. We also have a background in e-commerce and multi-level-marketing legal matters.

If you’ve landed on this page, there’s a solid chance you’re already involved in the industry or considering investment in a crypto, e-commerce, or MLM company. Whichever the case, let’s chat about how we can help you profit and protect assets.

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