A new division of the Securities and Exchange Commission dedicated to so-called “initial coin offerings” (ICOs) filed its first charges on Friday, targeting a scam that reportedly raised $15 million from thousands of investors by promising a 13-fold profit in less than a month.
In a criminal complaint filed in Brooklyn federal court, the new SEC division, known as the Cyber Unit, describes how Dominic Lacroix sold digital tokens known as “PlexCoins” as part of a purported plan “to increase access to cryptocurrency services” across the world.
The token sale was a blatant rip-off, according to the SEC, which says Lacroix, who resides in Canada, has repeatedly broken securities laws in the past.
“This first Cyber Unit case hits all of the characteristics of a full-fledged cyber scam and is exactly the kind of misconduct the unit will be pursuing,” said Robert Cohen, Chief of the Cyber Unit, in a press statement. “We acted quickly to protect retail investors from this initial coin offering’s false promises.”
The SEC also plans to return some of the proceeds from the scam to investors by seizing accounts Lacroix used to take credit card payments from swindled investors.
According to the criminal complaint, PayPal accepted over $380,000 on behalf of Lacroix but quickly became suspicious and reversed many of the payments.
Get Data Sheet, Fortune's technology newsletter.
Lacroix, however, then directed investors to two other payment processors--Stripe and Shopify--where he raised $800,000 and $1.8 million respectively. The SEC has moved to freeze money in those accounts as well as in Canadian bank accounts belonging to Lacroix.
The bulk of the $15 million raised in the PlexCoin scam, however, appears to have come from investors paying not with credit cards, but with other cryptocurrencies such as ethereum and Litecoin. It’s unclear for now if the SEC intends to try and recover the cryptocurrency, which can be easily moved and is hard to trace, or if it is capable of doing so.
An SEC spokesperson did not reply to a request for Fortune about whether it will attempt to seize the cryptocurrency payments.
Meanwhile, the agency did not provide any details about whether Lacroix is in custody in Canada, where he is also facing charges from regulators, or if the U.S. will seek his extradition.
SEC responds to growing threat of ICOs
The news of the PlexCoin scam underscores how the ICO process, which offers a way for startups to raise money outside of traditional investment channels, can be exploited by charlatans flogging phony get-rich quick schemes.
While many ICOs claim they are simply selling tokens as a means to access new digital platforms, the SEC issued a landmark ruling this July stating many such tokens are in fact securities, and subject to the agency’s regulations.
Since then, the SEC has filed charges against a man who ran two ICOs that purported to sell tokens backed by real estate and diamonds. And in a thinly-veiled warning shot against the likes of Floyd Mayweather and Paris Hilton, who have expressed support for certain ICOs on social media, the agency warned celebrities they risk falling afoul of securities laws for endorsing digital tokens.
The agency’s new Cyber Unit, which was created in September, appears to be the latest sign the SEC intends to ramp up enforcement against suspect ICOs. According to a person familiar with the agency, the Cyber Unit is similar to other specialized units at the SEC and was created from the ranks of existing staff members.
“The unit was created … to focus the Enforcement Division’s cyber-related expertise on misconduct involving distributed ledger technology and initial coin offerings, the spread of false information through electronic and social media, hacking and threats to trading platforms,” said the agency in its Monday statement.
This is part of Fortune's new initiative, The Ledger, a trusted news source at the intersection of tech and finance. For more on The Ledger, click here.
- Even Robots Are Joining the Bitcoin Craze
- Calm Down. Cryptocurrency Is Still a Microscopic Asset in the Financial Market
- Meet the 'Petro,' Venezuela's New Oil-Backed Cryptocurrency Aimed at Skirting U.S. Sanctions
- Here's What Bitcoin's Smartest Skeptics are Telling Investors
- Inside the Bitcoin $10,000 Party, Apple's Bungled Patch, Uber Security Exodus