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Friday, November 30, 2018

An ICO just beat the SEC's claims in court - but there's more to the story...

The ICO is called "Blockvest" and last month they were ordered to halt before they really even began, via an emergency court order.  The SEC press release explained their reasoning at the time:

"An SEC complaint unsealed yesterday alleges that Blockvest falsely claimed its ICO and its affiliates received regulatory approval from various agencies, including the SEC."

But today, the case was thrown out in court, the judge examining the case stated in his findings:

"Plaintiff and Defendants provide starkly different facts as to what the 32 test investors relied on, in terms of promotional materials, information, economic inducements or oral representations at the seminars, before they purchased the test BLV tokens. Therefore, because there are disputed issues of fact, the Court cannot make a determination whether the test BLV tokens were “securities”..."

the findings continue...

"At this stage, without full discovery and disputed issues of material facts, the Court cannot make a determination whether the BLV token offered to the 32 test investors was a ‘security'"

Why we shouldn't read too much into this:
The key word's above are 'at this stage' - because while the ICO had taken on investors, the "32 test investors" named were friends, family, and associates of the founder, which he had approached personally.

Those 'test investors' then made the case that they didn't invest because he had promised huge returns, they invested basically just because they liked the guy, as explained in the finding:

"...they were investing in because they trusted them based on their long-time familial and friend relationship."

It's the fact that the ICO went no further than these '32 test investors' that saved them.  Had the tokens been sold to the public, I think it's safe to say their violations would have been clear and indisputable.

Make no mistake - Blockvest and it's founder were up to no good:
We're not looking at totally innocent people here. The initial press release from back when the SEC ordered them to halt, highlights some of the shady things they were attempting to pull off.

"Ringgold promoted the ICO with a fake agency he created called the 'Blockchain Exchange Commission' using a graphic similar to the SEC's seal and the same address as SEC headquarters."

Other claims included that they we're regularly undergoing 3rd party auditing - they weren't.

But their defense revolved around stating his 'test investors' had never seen any of these false claims - therefore they couldn't have been misled by them. If none of the money he raised was the result of these misleading statements - then he never scammed investors.

One interesting precedent set:
Airdrops appear to be in the clear.  Other than the 'test investors' in this case, the ICO had only given out airdropped tokens to the public.

Given that a 'security' by definition has to involve the risk of an investment being lost, the definition just cannot apply. When it comes to airdropped tokens, no investment was ever made - the tokens are simply being given away.

So - airdropped tokens are outside of the SEC's regulatory oversight.

The full court documents can be viewed here.

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Author: Ross Davis
E-Mail: Ross@GlobalCryptoPress.com Twitter:@RossFM
San Francisco News Desk