The SEC has filed an emergency lawsuit against Reginald Middleton, Veritaseum Inc., and Veritaseum LLC. to prevent them from spending the money raised from their ICO. The SEC has claimed that the entire ICO which raised about $14.8 million was a scam.
The people behind VERI tokens created a facade of massive proportions, while no real project or business was backing its value. The SEC filing recorded,
Defendants knowingly misled investors about their prior business venture and the use of offering proceeds
The court has granted a temporary restraining order to freeze the multiple bank accounts and Ethereum wallets. Reportedly, $8 million worth in assets from the ICO is still left in the firm.
In reality, VERI are securities, as the substance of the Offering shows, including, forexample, in Middleton’s statements that “today’s roughly $3.30 purchase of VERI tokens could yield ($3.30 x 5,000%) = $165” and that “purchase of Veritas goes directly to fund” the business.
These statements are presented as proof that Reginald ran a firm and sold company securities as an ICO. Moreover, the project and the revenue model behind his claims were false as well. The defendants also exaggerated their amount raised in the ICO to $35 million to mislead the investors.
The SEC has filed a detailed case listing all the claims made by Middleton and by portals from Verisatium.
Veritaseum [VERI] plummeted from $16 to $3.77, losing 76.5% of its during the last day as SEC put the hammer on the unregistered ICO.
Ever since its release, the volatility in VERI has been extreme. The cryptocurrency reached an All-Time High of $538. Nevertheless, currently, it is trading at around $6.
The SEC claims that Reginald Middleton and Veritaseum created a huge illusion on false claims to drive up the price of their unregistered security.
Investors File Case Against Ripple for Misleading Investors
Investors in XRP has filed a similar complaint in California’s Federal Court against Ripple Inc. Investor Bradley Sostack has been named the lead plaintiff of the filling. While Susman Godfrey and Tayler-Copeland Law are the co-lead counsel on the case.
They have filed a class-action suit on Ripple which if accepted by the court would entitle them to represent all XRP investors, who according to them, were misled by Ripple.
Lawyers Jake Chervinsky and Rebecca Rettig elaborated on the case to the media and also substantiated Ripple’s chances. According to Chervinsky and Rettig, the case comes under both Federal Laws and California State Laws.
No Federal Laws have been broken until now because cryptocurrencies do not fall under the precedence of SEC’s Howey Test. However, the plaintiff’s lawyers have claimed that according to the SEC’s ‘framework’ on ICO, Ripple and its subsidiaries should be charged under unregistered security laws.
Nevertheless, “frameworks” are not enforceable by the law; this is the first time a framework will be used to get a judgment from the court. Rettig added,
“Although the framework on its own doesn’t have precedential value… it will be very interesting to see how the court handles the utility of the framework in moving forward in determining whether XRP is a security.”
Moreover, California State law presents added advantage to plaintiff claims on the pretext of ‘risk capital test.’ Chervinsky said,
“For the first time, the plaintiffs now claim that Ripple violated California’s false advertising and unfair competition laws by making fraudulent statements about the genesis, circulating supply, and adoption of XRP,”
Furthermore, he also added that the plaintiff has a “strong case,” and Susman Godfrey is one of the best plaintiff’s lawyer.
Plaintiff’s Doing SEC’s job for them?
The SEC has delayed all many decisions related to cryptocurrencies beginning with the ETF proposal on Bitcoin. However, the amendment to the securities laws or inclusion of digital tokens is still under progress.
The SEC has issued guidelines on the digital assets saying that,
The U.S. Supreme Court’s Howey case and subsequent case law have found that an “investment contract” exists when there is the investment of money in a common enterprise with a reasonable expectation of profits to be derived from the efforts of others.
According to the plaintiff’s claims, Ripple and XRP’s efforts were tied closely to their success. These claims might be valid as, during the initial phases of Ripple, XRP was considered mainly as a token of Ripple. They were even recognized as Ripple (XRP) on many platforms.
The plaintiffs have used claims on Twitter and other PR methods that Ripple used to mislead the customers on XRP. Jake Chervinsky noted,
“I’ve never seen so many citations to Twitter in a complaint before,”
Tweets and public statements from leading Ripple executives have been cited in the filling. The plaintiff aims to draw a correlation between their false marketing on XRP to run Ripple. Hence, using Ripple as the security of the company.
While the SEC itself cracked down on Verisatium and Reginald Middleton, in Ripple’s case, the investors have taken the initiative. Ripple has a 45-day window to either refute the claims or enter into dialogue with the SEC.
Do you think that courts will grant the class action suit status to the case or Ripple will seek to resort things with the SEC? Please share your views with us.
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Nivesh from Engineering Background is a full-time Crypto Analyst at Coingape. He is an atheist who believes in love and cultural diversity. He believes that Cryptocurrency is a necessity to deter corruption. He holds small amounts of cryptocurrencies. Faith and fear are two sides of the same coin. Follow him on Twitter at @nivishoes or mail him at nivesh(at)coingape.com