The U.S. District Court for the Southern District of California ruled a case between the SEC and Blockvest in favor of the ICO project.
Last week, the United States District Court for the Southern District of California ruled the case between the U.S. Securities and Exchange Commission and a crypto initial coin offering project called Blockvest and its founder and chairman Reginald Buddy Ringgold III. Though it could sound even surprising for the community, nevertheless, the court ruled the case in favor of the ICO project.
A Little Bit of History
The complaint against Blockvest’s ICO and its chairman and founder, Reginald Buddy Ringgold III was filed nearly two months ago, on October 3, 2018. The SEC considered BLV tokens that were sold by the company to be unregistered securities.
Though according to the documents Blockvest claimed to be the first licensed and regulated tokenized cryptocurrency exchange & index fund based in the US, the SEC insisted that the project had no right to pose itself as “registered” and “approved” by the commission.
Moreover, the SEC accused Blockvest of having created a fictitious regulatory agency called the Blockchain Exchange Commission (BEC) that has its fake government seal, logo, and mission statement that are very similar to those that are owned by the SEC. What’s more, Blockvest indicated the BEC’s ‘office’ which is the same as the SEC’s one.
On October 11, 2018, the court took a decision to temporarily restrain order and freeze the assets involved in the project’s ICO.
Court’s Decision
Nevertheless, further, the deal took another direction. The court heard a number of arguments provided by plaintiff SEC on the fact that BLV tokens should be treated as securities based on the three-part Howey test. Nevertheless, the court concluded that there were not enough facts proving that statement and refused to acknowledge the token as a security-based only on the distribution method of the above-mentioned asset.
The court stated:
“The court concludes that [the] plaintiff has not demonstrated a prima facie showing that there has been a previous violation of the federal securities laws … the court denies plaintiff’s motion for preliminary injunction.”
What It Means for the Market
Such a decision of the court was definitely a rather unexpected one, nevertheless, it established a real precedent for the market. But at the same time, it is not actually a great victory to the entire cryptocurrency industry.
Just recently, Jay Clayton, the chairman of the SEC, has noted that most ICOs are viewed as securities under existing U.S. regulations and added:
“If you finance a venture with a token offering, you should start with the assumption that it is a security”.
Nevertheless, it’s worth mentioning that promotion of an ICO that is acknowledged to be a security without offering compensation for the participants can lead to serious penalties. The fine could be twice higher than the potential compensation itself.
The community has already seen such a case when Floyd Mayweather was obliged to pay more than $600,000 while he had obtained just $300,000 for taking part in the promotion of three ICOs.
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