FINRA Charges Broker for Securities Fraud and Unlawful Distribution of an Unregistered Cryptocurrency Security

September 12

On Tuesday, September 11, the Financial Industry Regulatory Authority (“FINRA”) took its first disciplinary action against an industry professional, charging a broker, Timothy Tilton Ayre, with securities fraud and the unlawful distribution of an unregistered cryptocurrency security, HempCoin.

FINRA’s complaint alleges that Ayre attempted to lure public investment in his public company, Rocky Mountain Ayre, Inc., by issuing and selling HempCoin.  Ayre made a host of fraudulent statements about his company’s business and finances, as well as referring to HempCoin as “the first minable coin backed by marketable securities” and “the world’s first currency to represent equity ownership”.  FINRA charges that Ayre made materially false statements and omissions regarding the nature of the company’s business, making multiple false and misleading statements in his company’s financial statements, and failing to disclose his creation and unlawful distribution of HempCoin.

It is hard to discern, based on the nature of this complaint, FINRA’s plans for enforcement and compliance concerning cryptocurrency fraud.  On one hand, it is encouraging that FINRA has finally begun to take steps to curb the fraud and misconduct by professionals registered with the organization.  On the other hand, Ayre’s case is such a blatant abuse of FINRA’s rules and federal securities laws that the case offers no practical guidance for professionals.  FINRA, of course, is not a government agency.  Nevertheless, organizations like FINRA will achieve little if they target only the most blatant of abuses.

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Patrick Dennien is an associate in the Firm’s Washington, DC office. He practices in white collar crime and corporate investigations, sanction systems of international organizations, money laundering risk and AML regulation, cryptocurrency risk and regulation, and corporate compliance programs. Prior to joining the Firm, Patrick worked for the World Bank’s anti-corruption arm, where he assessed the compliance programs of multinational companies, and advised on the development and implementation of effective compliance programs.

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