Accept at face value that Profit Connect is not a scam. That is a stretch given the purported high returns, coupled with a money back guarantee.
• 15% to 20% Fixed APR
• High-Net-Worth 30% APR
• APR is Locked-In
• 100% Money Back Guarantee
No such thing as high returns with no risk. Of course, if the returns are that good, why would the sponsor let you invest.
After going through the mumbo-jumbo on the website, I got to an interesting take on the investment structure.
“A Profit Connect Wealth Builder is not an Investment, it is a purchase of Supercomputer time (usage) and the use of an App that pays you money, for blockchain calculations delivered to a client. The blockchain client is found, managed and supported by Profit Connect. The Wealth Builder Depositor simply places a deposit for seat time and the App makes them money every month, giving you total peace of mind. All Wealth Builder APR percentages are Guaranteed and All Wealth Builders have a Lifetime Money Back Guarantee.”
They are making some claim that you are merely renting computer time. I make the logical leap that the firm is taking the position that you are not buying securities from Profit-Connect and the firm is not selling you securities. That could be true. Renting computer time to you run Bitcoin mining is probably not a security by itself.
The Securities and Exchange Commission doesn’t spend much time on this point in the complaint.
100. The investments were part of a common enterprise because both investors and Profit Connect were to make money through Profit Connect’s investments, because Profit Connect pooled all investor funds into one bank account (the Profit Connect Investor Account), and because Profit Connect used some of those funds to make payments to investors.
101. Profit Connect investors were passive investors with no involvement in Profit Connect’s investment activity.
102. Investors relied entirely on the efforts of Profit Connect, which claimed that investor money would be invested in sectors determined by Profit Connect’s proprietary “supercomputer.”
To me the Profit Connect supercomputer is like the Howey orange grove. Renting supercomputer time is analogous to renting an orange grove. But if you package that resource into someone else doing all the work with no input from you, it looks a more like a security. I can rent supercomputer time and mine bitcoins. I take the risk of valuation fluctuations, utility costs, and success rate. Profit Connect is purporting to do all that for me. I give them money, do no work, I’m not allowed to do any work, and they give me more money back. Yeah, that does sound like a security.
It seems unlikely that the Profit Connect supercomputer is a real thing. One of the firm’s principals had been previously convicted of securities fraud. The SEC alleges that the firm had no operating revenue. All of the money coming in came from “investors.” Most of the money was paid out to solicitors and to the sponsors for personal use.
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