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Financial Services Law Insights and Observations

SEC obtains court order halting token offering

Securities SEC Courts Fintech


On August 12, the SEC announced it obtained a court order halting an alleged fraud involving the sale of digital securities which raised $14.8 million in 2017 and 2018. In addition, the court approved an emergency asset freeze to preserve at least $8 million of the funds raised, the SEC said in its press release. According to the complaint filed the same day in the U.S. District Court for the Eastern District of New York, an individual and two entities he controlled allegedly violated the registration, antifraud, and manipulative trading provisions of the federal securities laws, by, among other things, knowingly (i) marketing and selling securities tokens by creating false investor demand through the use of material misrepresentations and omissions; and (ii) misleading investors by claiming to have product ready to generate revenue even when no such product existed. Additionally, the SEC alleged that the individual defendant engaged in manipulative trading on an unregistered digital asset platform, and transferred a “significant amount” of dissipated assets from investors into his personal account. Among other things, the SEC seeks permanent injunctions, disgorgement of profits associated with the fraudulent activity, plus interest and penalties, a ban from offering digital securities, and an officer-and-director bar against the individual defendant.

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