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On June 22, 2021, the SEC announced that it settled charges against Loci Inc. and its CEO John Wise for making false and misleading statements in connection with the unregistered offer and sale of digital tokens called “LOCIcoin” through their InnVenn software platform.

Between August 2017 and January 2018, Loci Inc. and John Wise raised $7.6 million from early investors under the facade of inflated company revenue, employment numbers, and InnVenn user base. Wise and Loci allegedly made these false statements directly to investors as well as through Loci’s marketing materials and the news media. The SEC found both Loci and Wise guilty of violating antifraud and registration provisions of federal securities law. The SEC imposed a $7.6 million civil penalty against the company. The settlement also requires that Loci destroy their remaining LOCIcoin tokens, request the removal of the tokens from trading platforms, and publish the SEC’s order on Loci social media channels.

The order additionally found John Wise guilty of misusing investor proceeds to fund his personal expenses. Pursuant to Section 12 of the Exchange Act, Wise is now prohibited from serving as an officer or director of any company that issues a class of securities.

LEGAL TOKENS

This settlement reflects that the SEC plans to continue to step up their enforcement of crypto issuers. This is not a surprising development and is one in a long line of similar cases brought against crypto issuers and promoters. For instance, in May 2021, the SEC sued a group of five cryptocurrency promoters who raised over $2 billion from investors from the sale of unregistered digital asset securities offerings.

The penalties against CEO John Wise also serve as a reminder that private company executives can be held liable under federal securities laws. Individual company officers should be wary of this possibility when they act on behalf of their company, particularly regarding releasing statements that may be construed as false or misleading to investors.

The opinions expressed are those of the author(s) and do not necessarily reflect the views of the firm or its clients, or any of its or their respective affiliates. This article is for general information purposes and is not intended to be and should not be taken as legal advice.

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Anthony Tu-Sekine | Partner

As the head of Seward & Kissel’s Blockchain and Cryptocurrency Group and a frequent commentator on all things crypto, Anthony advises clients on a wide range of evolving topics, including how to structure and issue security and utility tokens, registered and unregistered offerings of security tokenstoken custody, transfer and liquidity issues, non-security opinions, and investments in crypto assets by funds and other investors. A recognized leader on physical precious metals funds, Anthony represented APMEX Inc. and alternative asset manager Sprott Inc. in connection with the launch of OneGold.com, which allows investors to own gold documented on blockchain.

You can work with regulators or you can really try to piss them off… If you really want to do the latter, then you should expect that they will bring every tool they have against you.

Anthony’s thoughts on BitMEX indictment, as published in Law360 article “BitMEX Case Seen as Blessing in Disguise for Crypto Sector”