SEC Sues Crypto Company and Co-Founder for Misleading Investors
The SEC sued a crypto asset company and one of its co-founders for a fraudulent marketing scheme that promised profitable returns on the company's stablecoins and other crypto asset securities.
In the Complaint, filed in the United States District Court for the Southern District of New York, the SEC alleged that the co-founder and the company (together, the "Defendants") raised billions of dollars through the sale of of crypto asset securities, many in unregistered transactions. The SEC claimed that the Defendants promised their investors growth of their investment values and interest payments as high as 20 percent.
The SEC asserted that between April 2018 through May 2022, the defendants (i) offered security-based swaps called "mAssets," designed to pay returns "by mirroring the price of stocks of US companies", (ii) offered an algorithmic stablecoin that "supposedly maintained its peg to the U.S. dollar by being interchangeable for another of the defendants' crypto asset securities" and (iii) offered other means to invest in their crypto asset products, including through crypto asset security tokens.
According to the Complaint, the Defendants violated Securities Act Sections 5(a), 5(c), 5(e) ("Prohibitions relating to interstate commerce and the mails") and 17(a) ("Fraudulent Interstate Transactions"), Exchange Act Sections 6(l) ("National securities exchanges"), 10(b) ("Regulation of the Use of manipulative and deceptive devices") and 20(a) ("Liability of controlling persons and persons who aid and abet violations") and Exchange Act Rule 10b-5 ("Employment of manipulative and deceptive devices"). The SEC requested a final judgment stating that the Defendants be (i) permanently restrained and enjoined from further regulatory violations, (ii) required to pay disgorgement with prejudgment interest, (iii) ordered to pay civil money penalties and (iv) prohibited from participating, directly or indirectly, in the purchase, offer or sale of any such crypto asset security by others.