On October 3, 2018, the Securities and Exchange Commission sued Blockvest LLC and its founder Reginald Buddy Ringgold, III for falsely claiming that its initial coin offering had been approved by the SEC. The complaint, filed in the United States District Court for the Southern District of California, Case No. 18-CV-2287-GPC, sought a return of improperly obtained funds as well as a temporary restraining order to “halt the fraudulent offer and sale of unregistered securities” by Blockvest and to freeze the assets of both Blockvest and Ringgold.
The SEC’s complaint alleges that Blockvest falsely advertised that its ICO was approved and licensed by the SEC. Blockvest allegedly used the SEC’s seal without its permission, which is an independent violation of federal law, and also promoted the ICO with a fake agency called the “Blockchain Exchange Commission,” which listed the SEC’s address as its address and used a logo similar to the SEC seal. Blockvest also allegedly continued to use the seal of the National Futures Association, even after the organization sent Blockvest a cease and desist letter.
On October 5, 2018, the district court issued a temporary restraining order against Blockvest and Ringgold, freezing their assets, prohibiting them from moving forward with the ICO, and granting other emergency relief.
The false endorsement prompted the SEC and the Commodity Futures Trading Commission to issue a joint investor alert regarding false claims of SEC or CFTC endorsements related to digital assets. The alert states that “federal government agencies, including the SEC and CFTC, do not endorse or sponsor any particular securities, issuers, products, services, professional credentials, firms, or individuals,” and, therefore, asks investors to be cautious of anyone claiming to be affiliated with a federal government agency.
The case against Blockvest is only the latest attempt by the SEC to crack down on fraudulent ICO’s and other cases of cybercrime. These investigations are an outgrowth of the SEC’s new Cyber Unit, established in 2017, and illustrate the agency’s intent to closely monitor cryptocurrency sales. The crackdown prompted several crypto companies to form a lobbying group last month aimed at updating the regulatory regime to address cryptocurrencies and to clarify how the new digital assets are to be regulated. Additionally, several members of Congress recently asked SEC chairman Jay Clayton for clarity on cryptocurrency regulation, expressing concern about relying on enforcement actions alone to clarify policy. Clayton has said that the agency intends to continue using current securities laws to regulate cryptocurrency, and it is not yet clear if these recent requests for action will change that mindset.