SEC to Accuse Ex Senator in Crypto Scam

Washington State Senator Dave Schmidt was involved in Meta 1 Coin, which assets were frozen due to fraud suspension
23 March 2020   240

The US Securities and Exchange Commission (SEC) froze the assets of the cryptocurrency project Meta 1 Coin due to suspected fraud. The former Washington State Senator Dave Schmidt was involved in it, according to a press release from the agency.

The SEC claims that Schmidt, along with Florida residents Robert Dunlap and Nicole Bowdler, organized the sale of the allegedly digital currencies Meta 1 Coin, misleading investors. In particular, fraudsters claimed that the coins were backed by a collection of art worth $ 1 billion, as well as gold worth $ 2 billion.

Attackers assured investors that Meta 1 Coin is a risk-free asset and promised a return of more than 224%. Thus, since April 2018, fraudsters have attracted about $ 4.3 million from more than 150 investors in the United States and abroad.

At the same time, according to the regulator, the coin is not backed up by anything and investors have never received tokens. Attackers used some investor funds to buy luxury goods, including Ferrari for $ 215 thousand.

The SEC accused the organizers of Meta 1 Coin of violating federal fraud laws and organizing the sale of unregistered securities.

Court to Ban TON Tokens Release

U.S. District Judge P. Kevin Castel, of the Southern District of New York issued a temporary restiction, therefore supporing the SEC
25 March 2020   286

The American court issued an order to the developer of the Telegram messenger, according to which he should refrain from the distribution of tokens of the TON blockchain project planned for next month.

According to CoinDesk, on March 24, the District Judge of the Southern District of New York, Kevin Castel, issued a temporary injunction, recognizing the SEC's arguments regarding the sale of unregistered securities by the company as reasonable.

The Court finds that the SEC has shown a substantial likelihood of success in proving that the contracts and understandings at issue, including the sale of 2.9 billion Grams to 175 purchasers in exchange for $1.7 billion, are part of a larger scheme to distribute those Grams into a secondary public market, which would be supported by Telegram’s ongoing efforts.

 

Kevin Castel

U.S. District Judge

According to the judge, this feature does not allow considering the Telegram offer as subject to exceptional conditions. He also noted that Telegram structured its project in such a way as to attract “the maximum number of primary buyers” against the background of the expectation of maximum profit at the time of launch.

Considering the economic realities under the Howey test, the Court finds that, in the context of that scheme, the resale of Grams into the secondary public market would be an integral part of the sale of securities without a required registration statement. 

 

Kevin Castel

U.S. District Judge

Conducting an analysis from the standpoint of the Howey test, the judge stated that buyers expected to profit from participating in the campaign. Moreover, although Telegram may argue that it will not become a guiding force in the further development of TON, “in fact,” it will be precisely this.

The judge agreed to distinguish between non-existent Gram tokens and securities purchased by TON investors, but refused to support Telegram's argument that Gram would be a commodity.

The Court rejects Telegram’s characterization of the purported security in this case. While helpful as a shorthand reference, the security in this case is not simply the Gram, which is little more than [an] alphanumeric cryptographic sequence.

 

Kevin Castel

U.S. District Judge

This is not the final decision, but it can serve as a powerful indicator of what position the court will adhere to further.