On February 18, 2022, the United States Court of Appeals for the Eleventh Circuit unanimously reversed a district court’s dismissal of a putative securities class action against online promoters of a new cryptocurrency coin (the “Promoters”) for violations of Section 12 of the Securities Act of 1933 (the “Securities Act”). Wildes v. BitConnect Int’l PLC, No. 20-11675 (11th Cir. Feb. 18, 2022). Plaintiffs alleged that the cryptocurrency investment platform (the “Company”) that issued the new cryptocurrency was in fact a Ponzi scheme masquerading as an investment program, and that, as a result of the Company’s scheme, investors suffered more than $2 billion in losses. In moving to dismiss, the Promoters argued that using online media and videos to make their sales pitches to the public at large—rather than to specific individuals—could not amount to solicitation under the Securities Act. The district court agreed with the Promoters, dismissing the action with prejudice in November 2019. On appeal, the Eleventh Circuit reversed, holding that “[a] seller cannot dodge liability through his choice of communications—especially when the [Securities] Act covers ‘any means’ of ‘communication.’”

According to plaintiffs, the Company’s scheme utilized online promotional videos and websites, in which the Promoters sought to convince investors to purchase a new type of cryptocurrency on the promise of outsized returns with very little effort. The Promoters created thousands of videos promising “huge profits” and those videos generated millions of online views. Specifically, Promoters touted the Company’s promise that investors would earn up to ten percent interest per month through the Company’s “staking” program when they left their cryptocurrency in their digital wallet and up to forty percent interest each month for investors who loaned their coins through the Company’s “lending” program. In reality, in what the Court referred to as a “classic pyramid scheme,” the “original investors simply received their so-called returns from the money paid by new investors hoping for the same.” When state regulators in Texas and North Carolina announced cease and desist orders to prevent the Company from issuing yet another new cryptocurrency in early 2018, the scheme unraveled, and the Company closed its trading platform. In a matter of months, the cryptocurrency’s value plummeted by 99.9%.

The district court granted the Promoters’ motion to dismiss in November 2019. According to the district court, the Promoters could not be considered statutory “sellers” under Section 12 because the Promoters’ sales pitches were made through YouTube and websites. Specifically, the district court held that plaintiffs failed to allege that “they purchased securities as a result of [the Promoters’] personal solicitations.”

The Eleventh Circuit disagreed. According to the Court, the “only question” on appeal was “whether a person can solicit a purchase, within the meaning of the Securities Act, by promoting a security in a mass communication.” In reversing the dismissal, the Court explained that contrary to the district court’s holding, “nothing in the Securities Act makes a distinction between individually targeted sales efforts and broadly disseminated pitches.” The Court also noted that it would make “little sense” that “a seller who would be liable for recommending a security in a personal letter could not be held accountable for making the exact same pitch in an internet video.”