ICO’s the latest kid on the block has made capital raising really easy especially for decentralized businesses. Although the ease with which money moves is something that the regulators don’t like as many of these so-called businesses have turned out to be scam and investors have been left out in the dry.
In the latest crackdown on ICO’s the SEC has upheld the digital asset start-up Tomahawk which was fined $30,000 and a lifetime ban for allegedly using ‘fraudulent market techniques’ to push its fundraising, according to the SEC filing dated August 14.
SEC bars perpetrator of initial coin offering fraud
According to the order released by SEC obtained permanent “officer-and-director” and “penny stock” bans against David T. Laurance, the founder of Tomahawk Exploration LLC, who perpetrated a fraudulent initial coin offering (ICO) of “Tomahawkcoins” to fund oil exploration and drilling in California. The order states that the ICO was barred because the promotional materials used inflated projections of oil production that were contradicted by the company’s own internal analysis and misleadingly suggested that Tomahawk possessed leases for drilling sites when it did not. To quote from the order,
“According to the order, the materials described Laurance as having a “flawless background” without disclosing his prior criminal conviction for his role in fraudulent securities offerings. The order also finds that Tomahawk claimed that token owners would be able to convert the Tomahawkcoins into equity and potentially profit from the anticipated oil production and secondary trading of the tokens. Although the ICO failed to raise money, Tomahawk issued tokens through a “Bounty Program” in exchange for online promotional services.”
Without admitting or denying the SEC’s findings, Tomahawk and Laurance consented to a cease and desist order and Laurance consented to an officer and director bar, penny stock bar, and a $30,000 penalty. The SEC’s investigation was conducted by Victor Hong, Justin Lichterman, and Serafima Krikunova of the San Francisco Regional Office, with assistance from Joseph Dugan of the Fort Worth Regional Office.
Investor alert issued by SEC in wake of fraudulent ICO’s
Following this order and changing the environment, The SEC’s Office of Investor Education and Advocacy (OIEA) issued an Investor Alert to encourage investors to check the background of anyone selling or offering them an investment using the free and simple search tool on Investor.gov. OIEA’s Investor Bulletin about ICOs is another resource that describes potential warning signs of investment fraud including “guaranteed” high investment returns and unlicensed sellers. The Alert quotes
“No matter how good an investment may sound, verify that the person is currently registered or licensed and check his or her background by using the free and simple search tool on Investor.gov.”
The advisory also states that one should look at following points and red flags before investing
- Disciplinary actions by a government regulator (including the SEC) or a self-regulatory organization (including FINRA);
- A history of customer complaints;
- Lawsuits or arbitration claims brought by customers; and
- Employment with one or more firms that have been expelled from the securities industry.
The SEC does it every bit to protect the investors and now it’s up to the investors to act upon it. In a way, these steps are good as it clears the industry from scam and frauds. Such steps are necessary to keep the investors’ confidence intact.
Is this step crackdown by SEC positive or negative for the crypto community? Do let us know your views on the same.
Nilesh Maurya has been associated for past 8 years as an Investment Banker with Omega Capital, a bespoke Investment Banking outfit having offices in Mumbai, New York, Singapore, and Dubai. He has been a regular contributor to business publications such as Business India and Market Express and has been a mentor to many start-up companies. Nilesh Maurya has been associated for past 8 years as an Investment Banker with Omega Capital, a bespoke Investment Banking outfit having offices in Mumbai, New York, Singapore, and Dubai. He has been a regular contributor to business publications such as Business India and Market Express and has been a mentor to many start-up companies. Follow him on Twitter at @KoinKing1 or connect with me on linkedin.