The US Securities and Exchange Commission has announced fraud charges against a Brooklyn individual and two entities under his control who allegedly engaged in a fraudulent scheme to sell digital securities to investors and to manipulate the market for those securities. On 12 August 2019, the court entered an emergency freeze to preserve at least $8m of the $14.8m the defendants raised in 2017 and 2018 in an offering of digital securities.
The SEC filed charges against Reginald ‘Reggie’ Middleton, a self-described ‘financial guru’, and two entities he controls, Veritaseum, Inc. and Veritaseum, LLC. The Commission’s complaint, filed in federal court in Brooklyn, New York, alleges that the Defendants marketed and sold securities called “VERI” tokens on the internet, inducing retail investors to invest based on multiple material misrepresentations and omissions. Among other things, Defendants allegedly knowingly misled investors about their prior business venture and the use of offering proceeds, touted oversized – but fictitious – investor demand for VERI, and claimed to have a product ready to generate revenue when no such product existed. The complaint further alleges that Middleton manipulated the price of the VERI tokens trading on an unregistered digital asset platform. The complaint also alleges that Middleton recently moved a significant amount of investor assets and then dissipated a portion of those assets, transferring them to his personal account.
The SEC’s complaint charges Middleton and Veritaseum with violating the registration and antifraud provisions of the US federal securities laws, and Middleton with additionally violating the antifraud provisions on the basis of his manipulative trading. The complaint seeks permanent injunctions, disgorgement plus interest and penalties, and a bar from offering digital securities.