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After failing to convince a federal court regarding the nature of Blockvest tokens in the previous hearing, the U.S. Securities and Exchange Commission (SEC) has finally convinced the same judge that these tokens are securities. The agency alleges that the firm and its founder made several false claims regarding their tokenâs regulatory status.
Also read:Â SEC Chair Explains Key Upgrades Needed for Bitcoin ETF Approval
SECâs Motion Finally Granted
The SEC announced on Thursday that the U.S. District Court for the Southern District of California has reconsidered its prior order regarding the Blockvest token. The court subsequently granted the agency a âpreliminary injunction against Blockvest Llc and its founder Reginald Buddy Ringgold III aka Rasool Abdul Rahim El for making fraudulent offers of securities.â
The order was signed by Judge Gonzalo P. Curiel who previously denied the Commissionâs request for a preliminary injunction against the defendants, citing âdisputed factual issues as to the nature of the investment being offered to the alleged investors.â
Howey Test Now Satisfied
Howeyâs three-part test needs to be satisfied in order to prove that a token is a security. It requires â(1) an investment of money (2) in a common enterprise (3) with an expectation of profits produced by the efforts of others,â the court document describes. While the SEC previously failed to show the court that Blockvest tokens (BLV) satisfied these requirements, the order issued on Thursday reveals:
The court determines that the SEC has demonstrated that the promotion of the ICO of the BLV token was a âsecurityâ and satisfies the Howey test.
The judge ruled that the âdefendantsâ website and their whitepaperâs invitation to potential investors to provide digital currency in return for BLV tokens satisfies the first âinvestment of moneyâ prong.â
For the second prong of the Howey test, the court decided that the defendantsâ âwebsite promoted a âcommon enterprise'â since the company claimed that the funds raised will be pooled with a profit-sharing plan. Specifically, its whitepaper states that as âa Blockvest token holder, your Blockvest will generate a pro-rated share of 50% of the profit generated quarterly as well as fees for processing transactions.â
Finally, the defendantsâ website and whitepaper explain that Blockvest investors would be âpassiveâ investors and the BLV tokens would generate âpassive income,â the case papers reveal, noting:
The contents of defendantsâ website, the whitepaper and social media posts concerning the ICO of the BLV tokens to the public at large constitute an âofferâ of âsecuritiesâ under the Securities Act.
The Case and the New Ruling
The SEC filed a complaint on Oct. 3 last year alleging that the defendants raised funds through an ICO for several financial products âbased on misrepresentations about the firmâs regulatory status.â
The Commission elaborated that the defendants falsely claimed that their ICO had been registered and approved by three regulators: the SEC, the Commodity Futures Trading Commission, and the National Futures Association. The defendants also falsely claimed that they had partnered with and been audited by Deloitte, the agency alleges, noting that they also created a fictitious regulatory agency called the Blockchain Exchange Commission with the same address as the SECâs headquarters.
âThe court ruled that [the] defendants are enjoined from violating provisions of the federal securities law prohibiting fraudulent offers or sales of securities,â the SEC confirmed Thursday. Specifically, the defendants made an offer of unregistered securities, which violated the Securities Act of 1933.
What do you think of the SEC taking action against Blockvest and its founder? Let us know in the comments section below.
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