The Securities and Exchange Commission charged Steven Chiang a/k/a Cyrus Kong, Eric Tippetts, James Hardy, and Maurice "Butch" Chelliah for their roles in raising over $10 million through two fraudulent and unregistered digital asset securities offerings.

The SEC alleges that in December 2017, Chiang launched NASGO, a company that claimed to have developed a blockchain-based platform on which clients could use digital asset securities called NSG tokens. Chiang and Tippetts then allegedly conducted an unregistered offering of NSG tokens to the public, in which they allegedly lied about the volume of NSG tokens sold, the number of users subscribed to NASGO's platform, and the projected value of NSG tokens. The SEC alleges that Tippetts repeated these claims at a Las Vegas blockchain convention and in videos posted to popular social media sites.

The SEC further alleges that, as investor interest in NSG tokens waned, Tippetts and Hardy created a new entity, Sharenode, to "market" the NASGO platform. According to the SEC's complaint, Tippetts and Hardy used Sharenode to launch another unregistered offering of securities issued by Sharenode called SNP tokens. As alleged, Tippetts and Hardy falsely claimed that the SNP tokens were on the NASGO blockchain and would increase in value by $.10 each week and $.10 for each new business that joined the NASGO platform. The SEC alleges that Tippetts, Hardy, and Chelliah promoted SNP tokens to investors through direct contacts, multi-level marketing strategies, and misleading video presentations posted to social media sites.

According to the SEC's complaint, the defendants misappropriated nearly $4 million of investor funds. The SEC also alleges that Chiang and Tippetts misused additional Sharenode investor funds by spending at least 133 bitcoin to list NSG tokens on an unregistered trading platform and to fund a team of captive traders to trade NSG tokens amongst themselves to create the false appearance of a robust market with increasing prices. These traders allegedly created the false impression that more than $2.5 million worth of NSGs were traded daily on BitForex during the first 60 days and that the price of NSGs was steadily increasing due to investor demand. According to the complaint, however, the manipulation scheme collapsed when investors tried to sell their NSG tokens, because there were no actual buyers, causing the token's trading price and volume to fall precipitously.

The SEC's complaint, filed in the U.S. District Court for the Southern District of California, charges Chiang, Tippetts, and Hardy with violating the antifraud provisions of Section 17(a) of the Securities Act of 1933 ("Securities Act") and Section 10(b) of the Securities Exchange Act of 1934 and Rule 10b-5 thereunder, and Chelliah with violating Sections 17(a)(2) and 17(a)(3) of the Securities Act. The complaint further charges each defendant with violating the securities registration provisions of Sections 5(a) and 5(c) of the Securities Act. The SEC seeks permanent injunctions, disgorgement with prejudgment interest, and civil penalties against each defendant, and conduct-based injunctions against Tippetts, Hardy, and Chiang. Tippetts and Chelliah have consented to bifurcated settlements, subject to court approval, under which they will be enjoined from violating the charged provisions of the federal securities laws. Tippetts also agreed to the entry of an injunction against participating in any offering of securities, including any digital asset security, except for purchasing or selling securities for his own personal accounts, and Chelliah has agreed to pay a $75,000 civil penalty. The court will determine the amounts of disgorgement and prejudgment interest to be ordered against Tippetts and Chelliah, and the amount of a civil penalty against Tippetts, upon future motion of the SEC.

The SEC's investigation was conducted by Todd Baker, David Hirsch, and Melvin Warren of the SEC's Fort Worth Regional Office, and supervised by Eric Werner. The litigation will be handled by Jason P. Reinsch and supervised by B. David Fraser. The SEC appreciates the assistance of the United States Attorney's Office for the Northern District of Texas and the Federal Bureau of Investigation.