A crypto pyramid scheme took in almost US$2 billion from investors, U.S. authorities allege in criminal and regulatory proceedings against the scheme’s promoters.

The U.S. Securities and Exchange Commission (SEC) charged Xue Lee (a.k.a. Sam Lee) and Brenda Chunga (a.k.a. Bitcoin Beautee) for allegedly violating anti-fraud and registration provisions of U.S. securities laws in connection with the HyperFund scheme that promised investors high returns from crypto mining.

The SEC said HyperFund was really a pyramid scheme with no sources of revenue apart from investors’ money.

“As alleged in our complaint, Lee and Chunga attracted investors with the allure of profits from crypto asset mining, but the only thing that HyperFund mined was its investors’ pockets,” said Gurbir Grewal, director of the SEC’s division of enforcement, in a release.

In a parallel criminal case, the U.S. Department of Justice charged Lee, Chunga and a third person, Rodney Burton, for their alleged roles in the US$1.9-billion HyperFund scheme.

Chunga pled guilty to one count of conspiracy to commit securities fraud and wire fraud. She will be sentenced on May 1.

Lee is charged with one count of conspiracy to commit securities fraud and wire fraud. Burton is charged with one count of conspiracy to operate an unlicensed money transmitting business and one count of operating an unlicensed money transmitting business.

Chunga also agreed to settle the SEC’s charges, with disgorgement and monetary penalties to be determined by the courts. That settlement is subject to court approval, while the regulator’s case against Lee will be litigated, as will the criminal charges.

The SEC’s complaint, filed in federal district court in the District of Maryland, seeks permanent injunctive relief, injunctions preventing defendants from participating in multi-level marketing or cryptoasset offerings, disgorgement of ill-gotten gains, prejudgment interest and civil penalties.

“This case illustrates yet again how noncompliance in the crypto space facilitates schemes where promoters capitalize on the promise of easy money, without providing the detailed investor protection disclosures required by the registration provisions of the federal securities laws,” Grewal said.