Defendants Charged in Fraudulent ICO Ordered to Pay Nearly $9.5 Million
Litigation Release No. 24665 / November 14, 2019
Securities and Exchange Commission v. Reginald Middleton, et al., Civil Action No. 19-cv-4625 (E.D.N.Y., filed Aug. 12, 2019)
The Securities and Exchange Commission announced that it has obtained a final judgment against the proprietors of the VERI Initial Coin Offering (ICO), who consented to an injunction against future violations of the antifraud provisions of the federal securities laws and agreed to pay nearly $9.5 million.
According to the SEC's complaint, filed August 12, 2019, Veritaseum, Inc. and Veritaseum, LLC ("Veritaseum"), and their owner, Reginald Middleton ("Middleton"), fraudulently raised millions of dollars in virtual currency from the unregistered sales of securities called "VERI" based on a series of false and misleading statements to potential and actual investors, including misrepresentations about the potential profitability and viability of Veritaseum's purported operations, the use of funds raised in the VERI ICO, and the amount of funds raised in the VERI ICO. The SEC also alleged that Middleton manipulated the price and volume of VERI on secondary digital-asset trading platforms during the VERI ICO.
On November 1, 2019, the U.S. District Court for the Eastern District of New York, entered a final judgment against Middleton and Veritaseum on their consent. Pursuant to the final judgment, the Defendants, without admitting or denying the allegations in the SEC's complaint, are enjoined from further violations of registration provisions of Sections 5(a) and 5(c) of the Securities Act of 1933 ("Securities Act"), and the antifraud provisions of Section 17(a) of the Securities Act, Section 10(b) of the Securities Exchange Act of 1934 ("Exchange Act") and Rule 10b-5 thereunder, and are additionally enjoined from participating in any digital-securities offerings. Middleton is also enjoined from further violations of the market manipulation provision of Section 9(a) of the Exchange Act. All Defendants are ordered to disgorge, on a joint and several basis, $7,891,600 in ill-gotten gains from the VERI ICO plus $582,535 in prejudgment interest, and Middleton is ordered to pay a $1,000,000 civil penalty. Middleton is also permanently barred from serving as an officer or director of a publicly traded entity.
The final judgment establishes a Fair Fund pursuant to Section 308(a) of the Sarbanes-Oxley Act of 2002 (the "Veritaseum Fair Fund"), and appoints Holland & Knight LLP as distribution agent for the Veritaseum Fair Fund to develop and propose a plan for the distribution of collected assets to victims of Defendants' fraud.
The litigation was conducted by Jorge G. Tenreiro, Victor Suthammanont, and Karen Willenken of the New York Regional Office and John O. Enright of the Cyber Unit. The case is being supervised by Lara S. Mehraban, Associate Director of the SEC's New York Regional Office.