Eli Regalado, an online pastor in Denver who made international headlines when his supposedly God-inspired cryptocurrency failed, has been barred along with his wife from selling crypto or other investments for the next 20 years.
The couple has also been ordered to repay $3.4 million.
“The defendants’ lack of understanding of the harm they have caused to their investors, coupled with their admitted desire to continue and expand the INDXcoin scheme, leads the court to conclude that (a ban on selling) is appropriate,” Judge Heidi Kutcher wrote Friday.
The Regalados face 40 criminal counts of theft, fraud and racketeering related to the sale of INDXcoin, but Kutcher’s ruling came in a civil case that the Colorado Division of Securities brought against the pair and their friend Nathanael Enos, who also sold INDXcoin.
Enos, of Colorado Springs, also received a 20-year ban and must repay $19,600.
“On behalf of all INDXcoin holders, our heavenly Father, in whom we serve, will deliver us,” Eli Regalado said by email Monday, quoting from the Bible: “Now when Daniel knew that the document was signed, he entered his house and he continued kneeling on his knees three times a day, praying and giving thanks before his God, as he had been doing previously.”
Eli, 45, and Kaitlyn Regalado, 32, are experienced marketers who created INDXcoin in 2021. They sold $3.4 million in coins and spent $1.3 million of that on personal expenses.
“The Regalados are 21st-century false prophets who leveraged the new and promising technology of cryptocurrencies to run an old-fashioned scam, victimizing their own congregants and others,” Tung Chan, the state’s securities commissioner, said in a statement Monday.
“The court’s holding is a win for Colorado investors, for justice and fair play, and for every legitimate cryptocurrency project out there. We are proud to be part of this work,” Chan said.
The central promise of INDXcoin was that its value would be indexed: Take the price of the 100 most valuable cryptocurrencies, add them up, divide by 100 and you would have the price of one INDXcoin. When Kingdom Wealth Exchange, the online marketplace where INDXcoin was bought and sold, opened, the indexed value was about $9, the Regalados have said.
But INDXcoin did not have anywhere near enough liquidity to rebuy at $9 the coins it had sold for $1 or $1.50. So, one unidentified trader in Canada made a flurry of sales, drained the liquidity and forced the exchange to close in 2023. INDXcoin hasn’t been sold since.
“The defendants’ assertions of the ‘value’ of INDXcoin were misleading at all points of the offering; merely ascribing an algorithmic value to a coin does not make it worth that,” Kutcher wrote last week. “The coin was never going to be worth what the algorithm stated.
“Rather than coming clean, defendants then made multiple posts and communications to their investors, assuring them that the exchange would come back online and that each investor would be able to sell their coin,” she added. “Defendants knew this was not true.”
During a three-day civil trial in May, the Regalados maintained that they could not have committed securities fraud because INDXcoin is not a security, and that fellow Christians bought INDXcoin to join in religious fellowship, not as a financial investment.
“Our whole focus in this trial is to show how terrible and inconsistent and absolutely amateur this (Division of Securities) investigation was,” Eli Regalado said in his opening statement.
“We didn’t defraud people, we didn’t scam people, we’re not predators, we’re not full of greed,” Kaitlyn Regalado said in her own remarks. “Many people got saved by this project.”
But Kutcher determined that INDXcoin is a security and its purchasers were misled by Enos and the Regalados, who never told investors that they would be spending much of the sale proceeds on themselves, thereby dooming the Kingdom Wealth Exchange to insolvency.
“Throughout the proceedings, Mr. Regalado offered this quote: ‘I will put the key of David on his shoulder. What he opens, no one will shut,’” Kutcher recalled from the trial and the pastor’s use of a passage from Isaiah. “Mr. Regalado related this quote to overcoming challenges.
“The quote seems apt, but for different reasons. Here, the Regalados used INDXcoin to open up a revenue stream and then closed that revenue to others when they closed Kingdom Wealth Exchange, leaving hundreds of people without a door to retrieve their investment.”