SEC Obtains Preliminary Injunction in Fraudulent Coin Offering Scheme
Litigation Release No. 24160 / June 7, 2018
Securities and Exchange Commission v. Titanium Blockchain Infrastructure Services, Inc., EHI Internetwork and Systems Management, Inc. aka EHI-INSM, Inc., and Michael Alan Stollery aka Michael Stollaire Civil Action No. 2:18-CV-04315-DSF (JPRx) (C.D. Cal. filed May 22, 2018)
The Securities and Exchange Commission announced that on May 30, 2018 the United States District Court for the Central District of California entered a preliminary injunction and orders freezing assets and other relief involving an initial coin offering (ICO) that raised as much as $21 million from investors in and outside the U.S. The court also appointed a permanent receiver over Titanium Blockchain Infrastructure Services Inc., the firm behind the alleged scheme. The preliminary injunction was entered with the consent of the defendants in the action.
The SEC complaint, filed under seal on May 22, 2018, charged that Titanium President Michael Alan Stollery, a/k/a Michael Stollaire, lied about business relationships with the Federal Reserve and dozens of well-known firms, including PayPal, Verizon, Boeing, and The Walt Disney Company. The complaint alleged that Titanium's website contained fabricated testimonials from corporate customers and that Stollaire publicly - and fraudulently - claimed to have relationships with numerous corporate clients. The complaint alleged that Stollaire promoted the ICO through videos and social media and compared it to investing in "Intel or Google." The district court granted the SEC's application for a temporary restraining order and orders freezing assets and other emergency relief on May 23. The complaint and temporary restraining order were unsealed on May 29.
The SEC's complaint charged Stollaire and Titanium with violating Sections 5(a), 5(c), and 17(a) of the Securities Act of 1933 and Section 10(b) of the Securities Exchange Act of 1934 and Rules 10b-5(a) and 10b-5(c) thereunder. The complaint charged another Stollaire company, EHI Internetwork and Systems Management Inc., with violating Section 17(a) of the Securities Act and Section 10(b) of the Exchange Act and Rules 10b-5(a) and 10b-5(c) thereunder. The complaint seeks permanent injunctions, return of allegedly ill-gotten gains plus interest and penalties, and a bar against Stollaire to prohibit him from participating in offering digital securities in the future.
The SEC's investigation, which is continuing, is being conducted by David S. Brown and supervised by Joseph G. Sansone and Diana K. Tani of the SEC's Market Abuse Unit in coordination with supervision by Mr. Cohen. Assisting the investigation is Morgan Ward Doran of the Cyber Unit and Roberto Grasso of the Los Angeles Regional Office. The litigation is being conducted by David VanHavermaat and supervised by Amy Jane Longo of the Los Angeles Regional Office.
The SEC's Office of Investor Education and Advocacy has issued an Investor Bulletin on initial coin offerings and a mock ICO website to educate investors. Additional information about ICOs is available on Investor.gov and SEC.gov/ICO. Investors in the Titanium ICO who believe they may be a victim should contact the SEC through www.SEC.gov/tcr and reference SEC v. Titanium Blockchain Infrastructure Services, Inc., et al., Civil Action No. 2:18-CV-04315-DSF (JPRx) (C.D. Cal.).