The SEC separately charged an issuer and its CEO (see here), and a lobbyist (see here) with conducting fraudulent unregistered offerings of a cryptocurrency.

In the Complaint against the issuer and its CEO, the SEC alleged that the issuer raised at least $5.6 million from more than 2,400 investors by selling tokens that the issuer asserted could be transformed in a superior version of bitcoin with anti-money laundering and security features built into the coin. The SEC claimed that none of the advertised capabilities actually existed, and the development of the required blockchain was minimal. The SEC alleged that the defendants repeatedly misled investors by falsely claiming that the technology would make digital asset transactions more secure. Additionally, the SEC alleged the CEO diverted approximately $1.1 million from the offering for his personal use. The SEC is seeking (i) permanent injunctions, (ii) disgorgement, (iii) civil penalties, (iv) injunctions prohibiting the issuer and CEO from participating in future securities offerings, and (v) barring the CEO from serving as a public company officer or director.

In a separate action, the lobbyist settled SEC charges by agreeing to (i) permanent and conduct-based injunctions, (ii) officer-and-director, industry, and penny stock bars, (iii) disgorgement of the $50,000 in commissions he received, in addition to the prejudgment interest of $5,501, and (iv) have the issue of civil penalties determined by the court upon motion of the SEC. The settlement is subject to court approval.

The U.S. Attorney's Office for the Northern District of California also initiated criminal actions against both the CEO and the lobbyist, charging the CEO with wire fraud, and the lobbyist with conspiracy to commit wire fraud related to the cryptocurrency and with violations of the lobbying disclosure requirements for unrelated conduct involving lobbying a member of Congress on behalf of a cannabis company.

Commentary

While the CEO was the leader of the fraud, it is Abramoff's involvement that is garnering all the attention. Abramoff, who is well-known for his previous convictions in high-profile Washington corruptions scandals, allegedly made a series of misrepresentations in support of the scheme, including claiming (i) that the cryptocurrency would use "biometric technologies" to verify identities and (ii) that the company had tried and was rejected from buying Super Bowl ad time. Interestingly, the charges against Abramoff for "knowingly and corruptly" failing to register as a lobbyist are the first-ever criminal prosecution for a criminal violation of the Lobbying Disclosure Act.

Primary Sources

  1. SEC Press Release: SEC Charges Issuer, CEO, and Lobbyist With Defrauding Investors in AML BitCoin
  2. SEC Complaint: NAC Foundation, LLC and Rowland Marcus Andrade
  3. SEC Complaint: Jack Alan Abramoff

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