While the lack of a regulatory framework certainly makes it harder to recover fraudulent cryptocurrency losses than for traditional securities, falling victim to a cryptocurrency scam when investing through a broker or large firm regulated by FINRA or the SEC makes it easier.
This coming January, a federal court in New York’s Southern District is scheduled to sentence former Wells Fargo broker James Seijas up to twenty years in prison for his alleged role in facilitating a $30 million-plus Ponzi scheme. Meanwhile, Seijas’ former firm, Wells Fargo Advisors, has been named in a Florida civil lawsuit brought by 73 affected investors who allege that the firm failed to supervise Mr. Seijas and failed to investigate his business dealings in Q3I LP, a cryptocurrency hedge fund that Mr. Seijas partly owned. The fund was falsely marketed to investors with inflated returns from a cryptocurrency in which the investor money solicited was never even invested in. While approximately $10 million was invested, most of the remainder was allegedly spent elsewhere on lavish cars, yachts, jewelry, and real estate, including a multi-million-dollar Florida home purchased by Mr. Seijas.
As is often the case when Ponzi schemes collapse, the investor money is typically already spent. Fortunately in Ponzi cases that involve large financial firms like Wells Fargo, investors still have legal recourse to sue the employing firms, which have a duty under the securities laws to supervise the activities of their registered employees not only within the firm, but also to disclose and supervise their business activity conducted outside of and away from the firm. According to Mr. Seijas’ BrokerCheck Report, Wells Fargo had not even disclosed Seijas’ outside business activity at Q3I to FINRA, which the plaintiffs in the civil action claim would have uncovered the scheme had Wells Fargo investigated or “done any minimal compliance review.”