Key Takeaways:
As per the latest reports, the US Securities and Exchange Commission (SEC) has secured a victory in the lawsuit against crypto firm Rivetz Corp and its CEO Steven Sprague over an initial coin offering (ICO) round. A judge ruled that the company violated federal securities laws by selling its native cryptocurrency to US-based investors without informing the SEC.
Judge Ruled Rivetz Sold RvT Tokens To Investors Without Registering Them As Securities
In a September 30 court order, Massachusetts federal court judge Mark Mastroianni ruled in favor of the financial regulator, determining that Sprague, through his blockchain hardware company Rivetz Corp, sold unregistered securities by offering US investors the Ethereum-based Rivetz (RvT) token.
The SEC initially filed its lawsuit against the now defunct Web3 firm and its chief executive in September 2021, alleging that they sold $18 million worth of RvT tokens in 2017 to over 7,200 persons, with a significant portion of the lot being United States residents.
While neither the regulator nor Sprague disputed the material facts of the case, the CEO claimed that by the standards of the securities-defining Howey Test, the cryptocurrency was a software product and not an investment contract.
In his statement, Judge Mastroianni wrote that from the announcement of the RvT token ICO through it completion, Rivetz and Sprague told potential investors that the value of the cryptocurrency is tied to the company’s goal of creating a blockchain-native security system for smartphones. He added that while the Rivetz coin was functional as an ERC-20 token, it had no additional uses or inherent value because Rivetz was yet to have a functioning security ecosystem.
Mastroianni closed his statement by saying that the value of the RvT token was “directly dependent” on the company’s entrepreneurial efforts, which met with the criterion of the Howey test indicating that buyers were expecting profits from Sprague’s efforts.
The tokens were promoted by Rivetz as a functional part of the company’s security ecosystem and its value depended on future demand and usability of the platform, which is another criteria that defined it as a security token.
The court has asked the SEC to confer with Sprague and file a proposal for injunctive and monetary relief by October 22.
SEC Claims Second Court Victory In A Week Over Unregistered Securities Offering To US Residents
The SEC’s latest court victory comes just a week after the agency partially won a case against blockchain firm Opporty International, where the company and its owner were accused of conducting a fraudulent ICO.
In a September 24 memmorandum, New York federal district court judge Eric Komitee said the SEC proved that it has enough evidence to claim that both Opporty and its owner Sergii Grybniak had unlawfully offered unregsitered securities to US investors.
The judge ruled that under the Howey test, the OPP tokens promoted and sold by the company were considered to be investment contracts under federal law and needed to be registered with the regulatory authority.
Throughout the legal proceeding, which began in January 2021, Grybniak argued that the OPP token sale did not need to be registered because it was conducted under Reg D/S exemption, which applies to transactions that don’t involve a public offering and where the purchasers are either accredited investors or persons outside the US.
Opporty marketed itself as a provider of blockchain-based systems for small businesses and their customers in the US. The platform was meant to be a space where small businesses could list their services and enter into agreements with potential clients via smart contracts.
The now-defunct crypto firm conducted its ICO between September 2017 and October 2018, raising $600,000 from almost 200 investors within the US and abroad. The court ruled that the company violated federal securities law by not registering the token sale.
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