This week, the Securities and Exchange Commission (SEC) continued its ICO crackdown campaign. This time regulators announced charges against former Republican Washington state senator David Schmidt and two other individuals for their roles in the 2018 Meta 1 Coin scam. It is alleged that the ICO left investors out of millions. Now the SEC seeks retribution for those who lost.
The SEC filed its complaint in the Western District of Texas on March 16. Regulators also named two other people, Robert Dunlap and Nicole Bowdler in the scam. All individuals face charges for violating antifraud and securities regulations.
Discussing the charges, David Peavler, the SEC’s regional director at the Fort Worth Regional Office stated that these individuals went out of their way to fraud US investors. The regulator went as far as to state they made “audacious claims about the Meta 1 Coin.” He explained that the team said anything to promote the event that left thousands with losses. Lastly, Peavler took a moment to remind investors that they should always act skeptically towards promoters who claim that their investment can’t lose value, or that investors will receive huge returns for minimal participation.
The 2018 Meta 1 Coin ICO appeared to be a great opportunity for investors at first. Unfortunately, the developers behind the Meta 1 project appear to have had other plans. The group made numerous false and misleading statements. For example, the group promised investors returns “as high as 224,923%”. On top of this outlandish claim, developers told investors the project was risk-free and “could never lose its value, and that one coin, which could be purchased for $22.22 (or $44.44), would be worth as much as $50,000 after the ICO”.
If all of these promises weren’t enough to get you to participate, Meta 1 had other strategies to employ. For example, Meta 1 promoters claimed an art collection valued at $1 billion backing the tokens. Dunlap was sued by the art collector who is the rightful owner to stop claiming ownership over the art. The final judgment stated that Dunlap and Meta 1 do not have “any interest, right, or title to the artwork [which Meta 1 claimed it owned]” and awarded the art collector $25 million in damages for slandering the art collector’s title and interfering with prospective buyers of the art.
Also, the SEC pointed to instances when the group claimed deposits valued at $2 billion backing the tokens. Supposedly, a reputable accounting firm regularly audited these funds. It appears that none of this was true.
Meta 1 Coins ICO
The Meta ICO raised just over $4.3 million from around 150 investors from across the globe. Unfortunately for Meta 1, many of these investors were from the United States. As you would expect, complaints began to roll into the SEC last year after Meta 1 failed to distribute coins to investors.
SEC investigators revealed that Meta 1 spent the funds in question on personal items. Specifically, the proceeds were funneled to a Chicago-based fund, Pramana Capital. Additionally, an individual named Peter Shamoon received some of the ill-gotten funds. Regulators described how the fraudsters spent the funds on their lavish lifestyles. In one instance, in particular, one of the individuals purchased a $215,000 Ferrari.
Now the SEC is seeking civil penalties and permanent injunctions against Schmidt and the other two defendants. As part of the punishment, the SEC wants Meta 1 to cease-and-desist operations. Additionally, the company must refund all ICO investors. This refund includes any funds sent to Pramana Capital and Shamoon.
Do Your Research
This story is another case of uninformed investors caught in the blockchain hype. Hopefully, the SEC is able to reunite these investors with their lost funds. For now, Shmidt and his companions face an uphill battle against the SEC in the coming months.
Nigerian SEC Provides Clarification on Token Offerings and Digital Asset Classification
Investors continue to flock towards assets such as cryptocurrencies and digital securities as, not only a new form of currency but a hedge against global economic uncertainty. As a result, regulatory bodies around the world have had to adapt or clarify approaches towards these alternative asset classes. The latest to do so is the Nigerian Securities and Exchange Commission.
Before jumping into what a few of these approaches are, the Nigerian SEC took the time to allay fears of an unnecessarily strict approach.
“Digital assets offerings provide alternative investment opportunities for the investing public; it is therefore essential to ensure that these offerings operate in a manner that is consistent with investor protection, the interest of the public, market integrity and transparency. The general objective of regulation is not to hinder technology or stifle innovation, but to create standards that encourage ethical practices that ultimately make for a fair and efficient market.”
“The position of the Commission is that virtual crypto assets are securities, unless proven otherwise.”
By taking this stance, it removes the guesswork surrounding the treatment of digital assets. Essentially, it does not matter if an asset fails to fit the definition of a security. In order to be deemed something else, this needs to be proven to the Nigerian SEC on a case-by-case basis. Only then, with the approval of the regulatory body, can an asset be reclassified.
Where the Onus Lies
In addition to establishing its position that all digital assets are to be treated as securities by default, the Nigerian SEC elaborated on where the onus lay for those looking to change the classification of an asset.
“…the burden of proving that the crypto assets proposed to be offered are not securities and therefore not under the jurisdiction of the SEC, is placed on the issuer or sponsor of the said assets.”
Essentially, the Nigerian SEC will not be taking it upon itself to classify every asset. It is the responsibility of a tokens issuer to prove the most appropriate classification.
All Token Offerings Regulated
While the first two points of clarification maintain a focus on investors, a third was made to provide clarity to companies hosting capital generation events.
These events, which include ICOs, DSOs, and IEOs, are all subject to regulation by the Nigerian SEC. There are no forms or variations that ‘skirt’ around existing regulations. As all digital assets are deemed securities by default, this classification spills over into events meant to facilitate their sale/distribution. It is stated,
“…all Digital Assets Token Offering (DATOs), Initial Coin Offerings (ICOs), Security Token ICOs and other Blockchain-based offers of digital assets within Nigeria or by Nigerian issuers or sponsors or foreign issuers targeting Nigerian investors, shall be subject to the regulation of the Commission”
In the ICO boom of 2017, companies around the world took part in these popular means of raising capital. While many were scams, there were still many well-intentioned companies that simply were not well informed. As a result, many hosted ICOs, under the impression that securities laws would not apply when this was simply not the case.
This stance by the Nigerian SEC was made in an effort to avoid this confusion moving forward. While ICOs may not be as popular as they once were, token offerings still regularly occur in the form of DSOs and IEOs.
The Nigerian SEC in its current form was founded in 1979. Much like similar regulatory bodies, it is tasked with ensuring fair and transparent capital markets through the creation and enforcement of regulations.
Chairman, Olufemi Lijadu, along with a 9 person board, currently oversees operations.
In Other News
At the beginning of today’s look at the actions of the Nigerian SEC, we alluded to similar occurrences in a variety of nations. Some of these occurrences involved real change, while others simply clarification. The following are a few examples of these.
FLiK and CoinSpark Orchestrators Charged by SEC for Fraudulent ICOs
On September 11, the SEC announced charges against FliK and CoinSpark, as well as five individuals associated with the two companies. The charges stem from two fraudulent ICOs (FliK and CoinSpark) held in 2017.
With 2020 being a disaster in many ways, it is easy to develop a short term memory of past years. Unfortunately for the bad actors that took part in past fraudulent ICOs, the Securities and Exchange Commission (SEC) remembers.
The charges surrounding these two ICOs are various. Not only did the events represent the illegal sale and distribution of securities, but they were rife with other fraudulent activity.
- Illegal sale and distribution of unregistered securities
- Appropriating and misusing investor funds
- Market manipulation
As a result of these charges, all parties have opted for a settlement with the SEC – each of which consists of restrictions on future market participation, along with fines that range from $25,000 – $75,000 USD.
The aforementioned charges are particularly noteworthy, due to the names attached to these projects. Of the 5 individuals charged, two are well-known celebrities.
Clifford ‘T.I.’ Harris – T.I. is a rapper/actor that not only promoted, and sold FLiK tokens, but also misrepresented himself as a co-owner of the project.
Ryan Felton – Primarily a film producer, Ryan Felton was the main orchestrator behind both illegal securities offerings. The SEC took the time to comment specifically on his actions, stating, “The federal securities laws provide the same protections to investors in digital asset securities as they do to investors in more traditional forms of securities…as alleged in the SEC’s complaint, Felton victimized investors through material misrepresentations, misappropriation of their funds, and manipulative trading.”
Off the Hook?
If there is one individual that may yet rest easy, and be happy with the conclusion of this saga, it would be Kevin Hart.
When the SEC first began investigating the actions of those affiliated with FLIK, Kevin Hart was among those named. Fortunately for the superstar actor/comedian, recent developments indicate that there have been difficulties proving his involvement.
For the time being, there was no mention of Kevin Hart in the SEC’s most recent communication.
Securities and Exchange Commission (SEC)
Founded in 1934, the SEC is a United States regulatory body. Its purpose is to foster fair and transparent markets, through the creation and enforcement of regulations pertaining to assets deemed securities.
Chairman, Jay Clayton, currently oversees operations at the SEC.
In Other News
When looking at some of the other high-profile cases to be settled with the SEC, news of FLiK and CoinSpark seems relatively minor. Despite this, when looking at the big picture it becomes clear that no ICOs are safe from enforcement actions by the SEC. These smaller cases discussed today are simply the latest in a long line of similar instances.
By not letting anyone ‘off the hook’, the SEC is sending a clear message moving forward that the blockchain industry needs to remain mindful of existing securities regulations, and that companies will be held accountable for their actions.
Zug, Switzerland ‘Crypto Valley’ Becomes Latest Region to Accept BTC & ETH as Tax Payments
Over the past few years, various regions around the world have made it known that their intent is to become a hub for blockchain. While a few have managed to cultivate a reputation associated with the technology, it is arguably Zug, Switzerland, that is leading the way. As a result, the moniker ‘crypto valley’ is often used when referring to the region.
Zug continues to bolster this reputation; it has announced that commencing in 2021 the region will begin accepting Bitcoin and Ether as payment for taxes. To use this service, all taxpayers need to do is request a personalized QR code from the Zug Department of Finance for payment.
“As the home of the Crypto Valley, it is important to us to further promote and simplify the use of crypto currencies in everyday life…By enabling the payment of taxes with Bitcoin or Ether, we are taking a big step in this direction.” – Finance Director Heinz Tännler
Using Crypto for Taxes
Along with the decision to accept BTC and ETH as payment for taxes, comes various stipulations. They are as follows,
- Service commences in 2021
- Only Bitcoin (BTC) and Ethereum (ETH) will be accepted
- Payments must be paid in full
- Eligible for tax balances up to CHF 100,000
As the region gears up for this change in 2021, there will be a short pilot program taking place in the coming weeks.
Despite being known as crypto valley, Zug (like most regions) would not necessarily have the technological wherewithal to develop a solution for collecting cryptocurrencies as tax payments. As such, a partnership was struck with the popular broker, Bitcoin Suisse.
In this partnership, a multi-step process is needed to make crypto tax payments possible.
- Bitcoin Suisse collects cryptocurrency tax payments from citizens
- Bitcoin Suisse immediately converts the cryptocurrency to FIAT (Swiss Francs)
- FIAT transferred to the Zug’s Cantonal Tax Office
Naturally, as these are blockchain based transactions, proof of payment and account settlements will presumably be quick and transparent.
A question asked by many is, “how will the government escape the volatility associated with cryptocurrencies when accepting them as payment?” By structuring the payment system in this manner, the Zug Department of Finance is able to avoid this volatility, as funds are immediately converted to FIAT.
“We do not take any risk with this new payment method, as we always receive the amount in Swiss Francs, even if payment is made in Bitcoin or Ether” – Finance Director Heinz Tännler
While Zug accepting cryptocurrencies as a means of payment for taxes is positive news, the region is by no means the first to announce such a step. In fact, it is now the third region in Switzerland to make the decision, with the most recent being the municipality of Zermatt. Notably, it was also Bitcoin Suisse that made the decision possible in each instance.
Outside of Switzerland, there have also been various examples in Canada. As a country that has continually led the way in the growth of blockchain, this is no surprise. From the creation of Ethereum to the launch of the first Bitcoin funds, Canada has remained at the forefront of the industry. These instances in Canada have taken place in Richmond Hill and Innisfil.
The point of all these examples is a simple one – acceptance and adoption of cryptocurrencies is occurring. Although acceptance for tax payments is a great sign, adoption of cryptocurrencies is evident in a variety of ways.
- Auctioning off (viewed as assets of value) – Seized BTC regularly auctioned off by government bodies. In doing so, BTC is given credibility as an asset viewed as valuable by the government itself.
- Regulations – Regulatory bodies have recognized the staying power of digital assets, and have begun to amend and clarify regulations to better suite a future in which they play a role.
- Institutional offerings – Bitcoin Funds, Futures markets, etc.
Playing home to many blockchain oriented companies, Zug is a region in Switzerland, commonly referred to as ‘crypto valley’. It has earned this moniker due to crypto friendly laws and regulations. The region is a relatively small one, hosting a population of roughly 127,000.
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