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U.S. Securities and Exchange Commission v. Blockvest LLC, et al., Civil Action №18-CV-2287-GPB(MSB) (S.D. Cal.
Blockvest and Reginald Buddy Ringgold III, also known as Rasool Abdul Rahim El (Defendants).
Date: February 14, 2019
Facts of the case:
Blockvest LLC (a US legal entity) positioned itself as the first licensed crypto-exchange and an index fund. In October 2018 SEC had suspended Blockvest’s Initial Coin Offering through an emergency court order. SEC claimed that the company ran its ICO on social media, which constitutes a public offering. Blockvest contested that their tokens were “offered to a small test subject group of thirty-two individuals receiving a sum below ten thousand dollars ($10,000)”.
Issue: Whether Blockvest’s tokens (BLV tokens) constitute securities, and whether their offering was to be registered under U.S. securities law.
The contents of defendants’ website, the whitepaper and social media posts concerning the ICO of the BLV tokens to the public at large constitute an ‘offer’ of ‘securities’ under the Securities Act of 1933. An offer of unregistered securities, therefore, violates Section 17(a) of the Securities Act.
To determine the nature of tokens, the court applied “Howey’s test”, which requires security to be: “(1) an investment of money (2) in a common enterprise (3) with an expectation of profits produced by the efforts of others”. In respect to the ICO of the BLV token, it was found that “investment of money” took place as ICO’s website and its whitepaper’s contained an invitation to potential investors to provide digital currency in return for BLV tokens. The “common enterprise” feature is satisfied as the company claimed that the funds raised would be pooled with a profit-sharing plan. Moreover, according to the project’s whitepaper, “a Blockvest token <…> will generate a pro-rated share of 50% of the profit generated quarterly as well as fees for processing transactions”. Finally, the defendants’ website and whitepaper promise that Blockvest investors would be “passive” investors and the BLV tokens would generate “passive income”.
A preliminary injunction against Blockvest LLC, and its founder Reginald Buddy Ringgold III aka Rasool Abdul Rahim El, for making fraudulent offers of securities.
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