A U.S. district judge has denied the motion filed by the Securities and Exchange Commission (SEC) against cryptocurrency company Blockvest and its founder. The SEC failed to show the court that Blockvest’s tokens are securities. The company has set up a fictitious regulatory agency and claimed its ICO is endorsed by three different U.S. regulators.
Also read: Indian Supreme Court Moves Crypto Hearing, Community Calls for Positive Regulations
Judge Denies SEC’s Motion
U.S. District Judge Gonzalo P. Curiel has denied the SEC’s motion for preliminary injunction against Blockvest Llc and its founder, the case document dated Nov. 27 shows.
The SEC alleged that Blockvest’s BLV tokens are securities based on the three-part Howey test. The defendants disagreed. After hearing “starkly different facts” provided by plaintiff SEC and the defendants, the court concluded that “because there are disputed issues of fact, the court cannot make a determination whether the test BLV tokens were ‘securities’ under the first prong of Howey.” Furthermore, the SEC “has not demonstrated” that investors had an “expectation of profits,” as required to satisfy the second prong of Howey.
According to the court document:
The court concludes that [the] plaintiff has not demonstrated a prima facie showing that there has been a previous violation of the federal securities laws … the court denies plaintiff’s motion for preliminary injunction.
The SEC filed a complaint against Blockvest Llc and its chairman and founder, Reginald Buddy Ringgold III aka Rasool Abdul Rahim El, alleging multiple violations of the Securities Exchange Act. Blockvest was set up to exchange cryptocurrencies but has never become operational, the court document notes.
The complaint states that the defendants had been selling BLV tokens which the SEC claims are unregistered securities. According to the company, the presales were conducted in March, $2.5 million was raised in seven days and nine million tokens were sold by Sept. 17.
The court document describes:
Blockvest purports to be the ‘first licensed and regulated tokenized cryptocurrency exchange & index fund based in the US.’
The SEC explained that Blockvest and Ringgold falsely claim their ICO has been “registered” and “approved” by the commission. They also use the agency’s seal on their website, along with the seals of the Commodity Futures Trading Commission (CFTC) and the National Futures Association (NFA). In addition, they claim to have partnered with and have been audited by Deloitte. The commission also noted:
Defendants also created a fictitious regulatory agency, the Blockchain Exchange Commission (BEC), creating its own fake government seal, logo, and mission statement that are nearly identical to the SEC’s seal, logo and mission statement. Moreover, BEC’s ‘office’ is the same address as the SEC’s headquarters.
32 Testers and 17 Investors
Ringgold argued that Blockvest has never sold any tokens to the public and its sole investor is Rosegold Investments Llp, which he runs and personally invested more than $175,000 of his own money into. Rosegold “manages Blockvest and finances Blockvest’s activities,” the court document reveals.
According to the SEC, Blockvest has 32 “partner testers” who tested its platform. They put BTC and ETH worth less than $10,000 in total onto the exchange. The commission also says that the defendants admit that Rosegold had 17 other investors during the pre-ICO solicitations and at least eight of them wrote “coins” or “Blockvest” on their checks.
Nonetheless, Ringgold claims that BLV tokens were never released to any investors and he has never received any money from the sale of BLV tokens. The court document states:
Ringgold recognizes that mistakes were made but no representations or omissions were made in connection with the sale and purchase of securities … Currently, he has ceased all efforts to proceed with the ICO and agrees not to proceed with an ICO until he gives SEC’s counsel 30 days’ notice.
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