Multiple ICO Enforcement Actions by SEC and State Regulators
This week the U.S. Securities and Exchange Commission (SEC) announced that it has settled charges against SimplyVital Health Inc. related to an initial coin offering (ICO) presale, in which the company allegedly raised $6.3 million in an unregistered sale of securities that took place between September 2017 and April 2018. After being contacted by the SEC, SimplyVital canceled its scheduled ICO and voluntarily returned to investors substantially all the funds raised in the unregistered offering.
Also this week, the SEC filed an emergency action in federal court and an application for a temporary restraining order (TRO) against Reginald Middleton, Veritaseum Inc. and Veritaseum LLC, seeking to freeze approximately $8 million of proceeds raised in what the SEC has alleged was a fraudulent ICO scheme and unregistered securities offering that took place in 2017 and 2018. According to the complaint, after being contacted by the SEC, “Defendants moved more than $2 million in remaining Offering proceeds from a blockchain address they controlled into other addresses, and used a portion of those funds to purchase more precious metals.” The TRO application seeks to freeze U.S. dollars held in multiple bank accounts and ether held in multiple Ethereum public key addresses.
In a third ICO-related action this week, the SEC filed a proposed settlement agreement with PlexCorps, the defendant in an SEC enforcement action involving an alleged fraudulent ICO scheme that took place in 2017. Penalties under the settlement agreement include forfeiture of ill-gotten gains, civil penalties of $1 million per individual defendant, injunctions against “engaging in any offering of digital securities,” and barring one individual defendant from serving as a director or officer in a public company.
Late last week, the Texas State Securities Board issued an emergency cease-and-desist order against Forex and Bitcoin Trader. The order alleges Forex and Bitcoin Trader, which advertises on Craigslist Dallas, is misleading investors and falsely claiming to be a licensed broker.
In foreign enforcement news, according to reports, the British tax authority recently contacted several cryptocurrency exchanges to request user information related to tax enforcement actions. Additionally, the U.K. Advertising Standards Authority recently issued a decision in favor of complaints alleging misleading advertising by a foreign-based cryptocurrency exchange.
For more information, please refer to the following links:
- SEC Charges Blockchain Company for $6.3 Million Unregistered ICO
- SEC Requests Freeze on Assets in Connection With Alleged $15M ICO Fraud
- NYC Man Faces Suit to Bar Use of Cash in Digital-Coin Fraud (1)
- SEC TRO: Reginald Middleton, Veritaseum, Inc.
- US Financial Regulators Reach $7M Settlement Over PlexCorps ICO
- Proposed Settlement: SEC v. PlexCorps
- Texas State Securities Board Emergency Order Cites Bitcoin, Forex Trader As Crypto Crackdown Continues
- HMRC Asks Cryptocurrency Exchanges For UK Customer Info
- UK Advertising Watchdog Upholds Complaints Against BitMEX Bitcoin Promotion
Blockchain Applications for Enterprise Networks, Wine, Web Browsers and Drones
Early this week, a multinational technology firm and an Indian telecommunications firm joined the governance council of Hedera Hashgraph, a public, permissioned blockchain for enterprises. Hedera’s public network reportedly facilitates micropayments and distributed file storage and supports smart contracts for private networks. Governance council members reportedly receive compensation for running nodes.
According to recent reports, a multinational professional services firm will provide the technology support for WiV Technology, a fine wine investment trading platform. WiV’s platform seeks to enable investment trades of bottles and cases of wine and direct shipment from producers to a bonded warehouse with full traceability. The professional services firm has reportedly developed a non-fungible ERC-721 token structure for the platform that will be deployed on the Ethereum blockchain. Each wine case will be allocated a token that has a unique identifier and that stores the wine’s properties, such as origin, quality and value, as metadata on Ethereum. A smart contract will then track the token ownership, provenance and transaction history.
In other recent enterprise news, Brave, a web browser that blocks advertisements by default, is estimated to have more than 226,700 verified publishers that use the platform. According to reports, this is a 1,200% increase in verified publishers over the past year. In related news, a new patent application for a blockchain-based web browser emerged late last week. The application comes from the same multinational technology firm that recently joined Hedera’s governance council. The browser reportedly would collect prespecified information from web browsing sessions, such as websites visited, bookmarks, task performance, geolocation, plug-in installation and security patches, and then transfer the information to a network of peer-to-peer nodes for collection and storage.
Two blockchain patent applications from a multinational retail firm were recently published by the United States Patent and Trademark Office. The first patent application deals with an unmanned aerial vehicle (UAV) blockchain-based coordination system, while the second patent application deals with a digital currency application. According to reports, the blockchain-based coordination system will be used to transmit key UAV information, such as identification numbers, flight heights, flight speeds, flight routes, battery information and loading capacity, to other UAVs. The firm reportedly sought a patent for a blockchain-based drone package delivery system in 2017.
To read more about the topics covered in this week’s post, see the following:
- IBM, Tata Become First Big Techs to Back Hedera Hashgraph Blockchain
- EY helps WiV Technology accelerate fine wine investing with blockchain
- Number of publishers on Brave increased 1,200% since mid-2018
- IBM Files Patent for a Blockchain-Based Web Browser
- Walmart Files Patent for Blockchain-Backed Drone Communication
Blockchain Analytics Firms Publish Reports, Details Emerge on North Korea Investigation
This week CipherTrace published its Q2 2019 Cryptocurrency Anti-Money Laundering Report. According to the report, approximately $4.26 billion in cryptocurrency funds have been lost in the first half of 2019 to various criminal activities including cyberthefts, scams, misappropriation and insider fraud. The report notes that hacks alone have resulted in $227 million in cryptocurrencies stolen from exchanges in the first half of 2019, and “exchange and infrastructure thefts” totaled more than $480 million. The report provides details on multiple 2019 trends related to global criminal activity, enforcement actions, regulatory developments and industry initiatives.
Late last week, Elliptic published the Elliptic Data Set, which is a “sub-graph” of the Bitcoin transaction graph. The dataset comprises “203,769 nodes and 234,355 edges,” while the full Bitcoin transaction graph “is made of more than 438 million nodes and 1.1 billion edges.” According to a press release, “[t]he task on the dataset is to classify the illicit and licit nodes, given a set of features and the graph topology.” The press release notes that “[t]wo percent (4,545) of the nodes are labelled class1 (illicit); twenty-one percent (42,019) are labelled class2 (licit)” and the remaining nodes “are classified as ‘unknown.’” According to the press release, Elliptic published the dataset “with the hope that it will inspire the academic and crypto community to help build a safer financial system based on crypto currencies.”
According to cryptocurrency analytics firm Clain, approximately 4,836 bitcoins (valued at over $50 million) that were stolen from the cryptocurrency exchange Binance were recently sent to Chipmixer, a bitcoin “tumbler” that obfuscates the origin of funds on the Bitcoin blockchain. According to the report, “[b]ecause of this huge volume, it is correct to assume that any outflow coming from Chipmixer these days is likely related to the same owner.”
This week more details emerged on an ongoing United Nations investigation into North Korean cyberattacks. According to reports, the primary operations of the hackers include stealing cryptocurrency “through attacks on both exchanges and users” and “mining of cryptocurrency as a source of funds for a professional branch of the military.” Another report published this week provided details on a new type of crypto-mining malware attack that “employs evasion techniques to hide from analysis and avoid discovery.”
For more information, please refer to the following links:
- Q2 2019 Cryptocurrency Anti-Money Laundering Report
- Clain—Binance Hack 2019 – A Deep Dive Into Money Laundering And Mixing
- CipherTrace: Cryptocurrency thefts, scams, and fraud could hit $4.3 billion in 2019
- Lost Crypto Value Surpasses $4.26B Worldwide In 2019
- The Elliptic Data Set: opening up machine learning on the blockchain
- Binance Hackers Bombard Chipmixer to Launder at Least 4,836 BTC
- UN probing 35 North Korean cyberattacks in 17 countries
- Varonis Uncovers New Malware Strains and a Mysterious Web Shell During a Monero Cryptojacking Investigation