This week saw the continuation of the SEC ICO crackdown. As such, regulators announced that they entered into a settlement discussion with Reggie Middleton. Middleton was the brains behind the 2017 Veritaseum (VERI) ICO.
The case was brought before the New York Eastern District Court with the filing published on October 2, 2019. In the filing, the SEC alleges multiple instances of misconduct from the firm. Now regulators want Middleton to pay $14.8 million in settlement fees.
Importantly, the SEC claims that on multiple occasions Middleton denied that VERI tokens were securities. He went as far as to refer to these tokens as software on numerous occasions. Regulators pointed out that he also told investors that the tokens were similar to gift cards.
To this extent, the SEC claims that Middleton actively misled investors. He hid the overall risks involved with the business maneuver. Additionally, he altered his business plan on numerous occasions to keep investors from realizing his true intentions.
After receiving numerous investor complaints, the SEC moved to freeze Middleton's assets in August. Regulators sought out a court order to ban Middleton from participating in digital asset securities offerings or conducting business in general.
Judge Reschedules Trial – Veritaseum
The trial was originally set for Oct 8, but after reviewing the case, Magistrate Judge Ramon E. Reyes rescheduled the pre-trial for November 14. This decision was made to give both parties more time to prepare for the trial.
More Money More Problems – Veritaseum
Things are not looking bright for Middleton. His firm suffered numerous shady dealings throughout the 2017 ICO process. For example, a hack that occurred during the preliminary crowdfunding stage resulted in a loss of $8 million. Not surprisingly, these funds were never recovered.
Miss Appropriation of Funds – Veritaseum
Furthermore, regulators claim that Middleton miss-appropriated $520,000 of investor's funds. These stolen funds went towards personal expenses Middleton accrued according to the court filing.
SEC Wants Blood
News of this settlement follows a string of high profile cases in which numerous firms saw hefty fines. In one instance, Sia received a fine of $225,000 for a 2017 ICO in which the company raised $120,000. EOS developers got a smaller fine, in terms of percentage, of $24 million for its ICO in which the company raised $4.1 billion. Sia developers stated that they hoped for a more lenient fine after seeing the results of the EOS trial. Unfortunately, SEC regulators didn't feel the same way about the issue.
Despite the fines being almost double what the firm raised in its ICO, the company did receive some good news. The SEC decided that Sia coins were not a security. Therefore, Sia has the green light to continue operations on its blockchain-based cloud storage platform.
SEC vs Middleton
It’s hard to say exactly how the SEC will treat Middleton for his actions. If regulators decide his ICO was a scam from the get-go, you could expect to see fines in excess of the company's ICO earnings. For now, the cryptocommunity awaits the start of the November trial.