Apparently, the blockchain makes everything cooler as a way to invest. Even securities laws shouldn’t get in the way. Reginald Buddy Ringgold, III thought he had escaped from the grasp of the SEC when a court refued to issue a preliminary injunction against his Blockvest ICO. The court changed its mind and slapped an injunction in place.
Back in October, the SEC brought charges against Mr. Ringgold, alleging that that they were planning to raise funds through an initial coin offering for financial products that would generate double-digit returns based on misrepresentations about the firm’s regulatory status. He used the SEC seal without permission and falsely claimed that their crypto fund was “licensed and regulated.” He also promoted the ICO with a fake regulatory agency he created, the “Blockchain Exchange Commission,” with a seal similar to the SEC seal and the same address as SEC headquarters. (It was that last bit that caught my attention.)
In looking at whether the Blockvest ICO was a securities offering, the court said no to the SEC because Mr. Ringgold said that the ICO was just a test platform and people were not really investing money. The court found that moving enough to find it not a securities offering.
In its new strategy, the SEC targeted the website advertising of the ICO. An offer of unregistered securities can be enough.
Section 17(a) applies to the “offer” or “sale” of securities. 15 U.S.C. § 77q. A violation of Section 17(a) does not require a completed sale of securities. See SEC v. American Commodity Exch., 546 F.2d 1361, 1366 (10th Cir. 1976) (“actual sales [are] not essential” for liability to attach under § 17(a) and § 10(b)); S.E.C. v. Tambone, 550 F.3d 106, 122 (1st Cir. 2008) (noting that “because section 17(a) applies to both sales and offers to sell securities, the SEC need not base its claim of liability on any completed transaction at all”).
Under securities law and caselaw, the definition of “offer” is broad. There is no requirement that performance must be possible or that the issuer must be able to legally bind a purchaser. That “Buy Now” button on the BlockVest website, along with the whitepaper and other descriptions were enough for the court to conclude that it was an offering.
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