The SEC has made an emergency filing to prevent the promoters of an ICO from spending the money they collected during the offering. The federal agency announced yesterday that it had obtained a court order that freezes the assets of Veritaseum, which conducted an ICO in 2017 for its VERI tokens, and Reggie Middleton, acting CEO of the company. The court order freezes accounts at banks, exchanges, and 15 addresses located on the Ethereum blockchain.
The emergency action that was filed on Monday claimed that the 2017 Veritaseum ICO was illegal and fraudulent. During the ICO, investors bought 51 million VERI tokens for $14.8 million.
A Tale of False Token Descriptions, Artificial Price Boosts, and Missing Investor Funds
On its website, Veritaseum claims to be a highly-disruptive revolution in finance that enables access to peer-to-peer capital markets for everyone. But it offers little detail about the supposed revolution and peppers site copy with crypto buzzwords such as “smart contracts” and elimination of crypto “intermediaries.”
Middleton was accused of peddling false information about the business and taking actions to boost VERI’s price in the market. He sold VERI tokens as an investment in a tech platform, comparing them to gift cards used at retail giant Walmart. This description helped the tokens escape security classification from the SEC. Securities have extensive disclosure and regulatory requirements unlike utility tokens.
Middleton also claimed that he had established deals with high net worth individuals, airlines, and one of the biggest Caribbean exchanges. Additionally, it is alleged that he misappropriated about $520,000 sourced from investors and used a further $600,000 to buy precious metals, which were used in another scam. Besides the freeze, the SEC wanted the court to bar Middleton from destroying documents and ever running another public company or taking part in an ICO.
In terms of market manipulation, the SEC claims that Middleton made various secretive trades to artificially boost the price of VERI tokens by about 315% in a single day of trading. After that, he touted this price boost to holders of the VERI tokens. As part of the deception, Middleton also faked trading volume on EtherDelta to pump the price of the VERI tokens. To get more people to come onboard, Middleton would publicize the growing prices or volume.
Eight million dollars in investor funds are also missing. Middleton said that hackers stole and liquidated 36,000 tokens from the accounts of the company in 2017. Attorneys representing the SEC also note that when the company learned that the SEC was planning to take action against them, they moved over $2 million of funds to other ventures.