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Veritaseum Hit with $8 Million in SEC Fines

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Veritaseum Hit with $8 Million in SEC Fines

In another example of the SEC turning up the heat on firms, the regulatory body hit Veritaseum and its CEO with hefty fines. Veritaseum had been embroiled in an SEC trial since earlier in the year. The SEC alleged the firm illegally sold securities to investors. Now the company must pay $8 million in fines and judgments as part of its retribution.

As previously reported, Veritaseum LLC, its CEO Reggie Middleton, and a sister firm, registered in NY, Veritaseum Inc. faced serious scrutiny from the SEC for its 2017 – 2018 ICO. During the unregistered coin offering, the firm secured $14.8 million in funding from investors.

Veritaseum Complaints

By mid-2018, the SEC received numerous complaints of fraudulent activity on the part of Mr. Middleton. For example, the SEC report alleged Middleton downplayed the risks involved in the investment. Additionally, he misrepresented the tokens his company offered.

Tokens are not Coupons

On multiple occasions, he referred to the tokens as securities or software. The report states that at least on one occasion, he told investors the tokens were similar to gift cards.

Hacking Incident

On top of the troubling miss information campaign, Veritaseum had other shady incidents occur during its now controversial ICO. According to Middleton, the company was the victim of a hacker that stole $8 million from funds raised. Of course, these funds were never recovered. Consequently, the incident added to the black cloud accumulating over the Veritaseum camp.

Veritaseum via CoinMarketCap

Veritaseum via CoinMarketCap

SEC Responds

In August of this year, the SEC responded to investor complaints. The regulatory body sent Middleton a cease-and-desist. As part of the complaint, Middleton’s ability to host an ICO or operate his firms was put on freeze.

SEC Enters Talks

The SEC entered official settlement talks with Veritaseum on OCT 9. This decision followed a postponement of the original trial date until Nov. 14, 2019, by the New York Eastern District Court.

According to reports, Veritaseum must now pay $8.4 million in disgorgement fines. Of these fines, $7,891,600.00 goes to defendant liabilities. Additionally, the company is liable for a civil penalty of up to $1 million and a prejudgment interest amount of $582,535.

Veritaseum Hit Hard

The news hit Veritaseum’s market value hard. Since the start of the trial, Veritaseum lost around 35% of its value. The token fell from around $25 per coin to $15, before rebounding slightly to $18.71.

SEC on the War Path

The SEC has been on a mission to crack down on ICOs from the 2017 crypto craze. Regulators already hit Sia with a $225,000 for its 2017 ICO in which the firm raised $120,000. EOS is another example of the SEC crackdown. The company must pay $24 million for its $4.1 billion 2017 ICO. While both firms faced charges for illegally selling securities, neither had such significant misrepresentation claims put against them as Veritaseum.

Veritaseum is Unique

In this manner, Veritaseum is significant. The firm is still operating but Middleton is no longer able to conduct blockchain crowdfunding ventures. It’s hard to say exactly what the long term effects of the settlement will be. For now, the crypto community must watch and wait patiently to see the results.

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David Hamilton is a full-time journalist and a long-time bitcoinist. He specializes in writing articles on the blockchain. His articles have been published in multiple bitcoin publications including Bitcoinlightning.com

Regulation

Bank of Russia Looks to Retcon Regulations Surrounding Digital Assets

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Successful Completion

A pilot program, sanctioned by the Bank of Russia, was developed, and recently completed, by Russian mining industry giant, Nornickel.

This pilot, which took place within the bank’s regulatory sandbox was structured as a means to test the veracity of the benefits surrounding digital assets, and the potential role they can play in finance.

 Pilot Capabilities

The pilot saw a platform developed by Nornickel, which provides its clients with various capabilities surrounding digital assets.  Through the use of ‘hybrid tokens’ the platform provides, but isn’t limited to, tokenization of…

  • Goods
  • Services
  • Securities

The goal hoped to be achieved through offering these services is two-fold, like most tokenization platforms.

  1. Provide companies easier access to financing opportunities
  2. Provide investors with an increase palette of investment choices.

Changes Incoming?

The Bank of Russia did not embark on this endeavour for the fun of it.  They have noted the potential role that digital assets will play in the future of finance, and are looking to prepare themselves accordingly.

As such, they have now submitted framework surrounding digital assets, in hopes of seeing new amendments made to Russia’s current laws governing crypto – Framework established during Nornickle’s time in the bank’s regulatory sandbox.

We have previously taken a look at a few of the laws governing blockchain in Russia, which the nation’s central bank hopes to see amended.  Make sure to peruse the following article to see the areas which stand to, potentially, be altered.

Russia Begins Regulatory Framework for Security Tokens

Commentary

As stated, the Bank of Russia, only today, released a statement on the successful completion of the pilot program.  The following is a translation of commentary provide by the bank.

Ivan Zimin, Director of the Financial Technology Department of the Bank of Russia, states,

“It was one of the largest sandbox projects. We have studied in detail the new business model and its compliance with the needs of the market. An important part of the service is the use of hybrid tokens, which make it easy to adapt to the needs of business and consumers and provide flexible solutions to attract investment. As a result of the piloting, the Bank of Russia proposed to include in the draft federal law “On Digital Financial Assets” the provisions necessary for the introduction and development of such solutions in the emerging market of digital assets, which were supported by the government agencies and business.”

Seeking a Friendly Hand

Establishing a clear framework surrounding digital assets is clearly of importance when gauging industry development.  As industry participants look to continue expanding their products and services, we have seen many begin seeking out nations which have had the foresight to implement such framework.

One company, recently covered, that is doing just that, is Smartlands – a UK based tokenization platform.  Smartlands recently announced that they would be basing their future moves on the Liechtenstein Blockchain act.

Smartlands Begins Realignment with Eyes on ‘Liechtenstein Blockchain Act’

Treading Lightly

While news of a potential implementation of government backed framework is, no doubt, welcome, Russia has remained skeptical of the cryptocurrency industry at large.  Tokenization of assets and financial instruments in a regulated manner are one thing, but cryptocurrency transactions are another beast entirely.

Russia has taken a trepidatious stance towards cryptocurrencies, as they link them to potential money laundering schemes.  This stance has been reiterated as recently as February 17, 2020 by the Bank of Russia, as they look to update ‘Directive 375-P’ – essentially a manual for identifying illicit financial activity.

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SEC Charges Opporty for 2018 ICO

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SEC Charges Opporty for 2018 ICO

This week, the Securities and Exchange Commission (SEC) continued its ICO crackdown. This time, the firm levied charges against project Opporty Founder and Brooklyn-resident Sergii Grybniak. The firm alleges that Grybniak broke the law when his firm raised approximately $600,000 during its 2018 ICO.

News of the charges first broke via Jan. 21 press release. In the release, the SEC reveals the charges laid against Grybniak in detail. Importantly, the primary charge is participating in the unregistered sale of securities. Additionally, the SEC claims that Grybniak made false statements in order to encourage more investor participation.

These statements include a myriad of exaggerated and completely fake claims. In one instance, Opporty claimed that its 2018 ICO was “100% SEC-compliant.” Unfortunately, this claim proved to be the tip of the iceberg. Apparently, Opporty also claimed to have thousands of “verified providers” who were ready to work with the platform.

Opporty via Homepage

Opporty via Homepage

This claim became so overblown that in one piece of marketing material, Opporty suggested it had a business database that included around 17 million participants. In actuality, the firm had no partnerships. Unfortunately, these claims served one main purpose, to push more investment capital into the ICO.

Major Software Firm

As if the shower of lies put forth weren’t enough, Opporty also made some very specific partnership claims that proved to be bunk as well. According to the SEC, the firm lied about a partnership with a major software company. This lie was to help ease investor doubt about the ability of developers to deliver on their hefty platform promises.

SEC Steps In – Opporty

It doesn’t take much research to see why Opporty ended up in the SEC’s crosshairs. Now, the SEC seeks injunctions against all future digital offerings by the company. On top of the cease-and-desist, regulators require Opporty to return all the funds the company raised during its 2018 ICO. Also, the firm is to face a variety of civil penalties for its actions.

Opporty

Opporty executives sold the concept to investors as a blockchain-based ecosystem for small businesses. The platform was to provide these small-to-medium sized companies with access to advanced blockchain systems. For example, businesses could list their services and lock in their clients via smart contracts.

United States Investors

Aside from the obvious scamming that took place, Opporty made another key error in its strategy. You see, unlike many similar ICOs, the offering did not explicitly exclude U.S. investors from participating. The 2018 ICO included investments from around 200 US citizens. In this way, the firm invited the SEC to monitor its actions throughout its entire crowdfunding campaign.

An Oppurty Lost

Given the long list of violations this firm now faces, it’s easy to imagine a scenario in which Opporty decides to close its doors. Already, numerous SEC-charged firms have taken similar measures prior to refunding clients’ funds. For now, Opporty has a long legal battle and hefty fines to deal with. You can expect to hear more from this case as the SEC pursues its charges against Grybniak.

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Disguises, Fake Identities, and an Illegal ICO – The SEC Looks to Lay Charges

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Charges Laid

The SEC is hard at work ousting, and holding accountable, those in the world of blockchain that have breached securities laws.  Most recently, the SEC has turned their attention to an ICO hosted by a pair of companies operated by a duo of devious individuals.

The Companies
  • CG Blockchain Inc.
  • BCT Inc.

This pairing of companies was marketed as developing technology to disrupt hedge funds, and the way they operate.

The Ring Leaders
  • Boaz Manor (alias ‘Shaun Macdonald)
  • Edith Pardo (alias ‘Edith Mehler’)

In all endeavours, it is believed that Boaz Manor was at the helm, with Edith Pardo acting as a ‘front-woman’, deflecting attention from Manor’s past.

The Details

In this particular case, the pair of companies, and the aforementioned individuals, are accused of facilitating/hosting a ‘fraudulent and unregistered offering of digital asset securities’.

$30 million worth of these securities were sold to investors, under the guise of a utility token ‘BCT’.  Beyond simply selling illegal securities, those responsible flat out lied to their investors on a variety of fronts.

  • Fake Identities
  • Fake chain of command
  • Product state of development
  • Product Adoption
  • Investments by founders

The list goes on.  Simply put, they were not who they said they were, and the companies did not have a developed product gaining traction within the industry.

Fake Identity

This next bit is not an everyday occurrence – rather, it was something you would see in a movie.  Knowing full well that their activities were in violation of various securities based laws, Manor and Edith Pardo felt it prudent to hide their identities.

In order to do this, and distance themselves from their past activities (more on that, later), the pair went to great lengths.  The SEC states,

“During the scheme, Manor employed a number of deceptive devices related to his fake identity and to the concealment of his background and role.”

Some of the tactics used to conceal their identities included dying hair, growing beards, attaining fake identification under the alias ‘Shaun MacDonald’, etc.

Shady Past

There are few reasons to justify hiding one’s identity in the manner that Manor did – either you’ve done something bad, or are doing something bad.  In this particular case, Manor is guilty of both.

We’ve discussed the illegalities associated with his actions in the aforementioned ICO, however Manor has a history of such activity.  Dating back to 2005 in Canada, Manor was found to be running a fraudulent hedge fund, valued at nearly $750 million.

When light was shed upon his operation, Manor proceeded to flee the great white north, becoming a fugitive in the process.  After eventually returning, and completing a prison sentence of 1 year, Manor went on his way, staying out of the limelight until now.

Commentary

Due to the great lengths gone to by the pair to partake in the aforementioned illegal activities, in addition to the sum of money raised, the SEC is taking a strong stance.  The following is an excerpt from their court filing.

“Unless Defendants are restrained and enjoined, they will again engage in the acts, practices, transactions, and courses of business set forth in this Complaint or in acts, practices, transactions, and courses of business of similar type and object.”

SEC

The Securities and Exchange Commission is a United Stated based regulatory body, tasked with creating, an enforcing, regulation surrounding securities.  The goal of which is to foster and maintain a fair, transparent, and efficient market for all participants.

Chairman, Jay Clayton, currently oversees company operations.

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