On August 13, 2019, the U.S. Securities and Exchange Commission announced on 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.
The SEC filed charges against Reginald “Reggie” Middleton, a self-described “financial guru,” and two entities he controls, Veritaseum, Inc. and Veritaseum, LLC (collectively, Veritaseum). The complaint, 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 and alleges that Middleton recently moved a significant amount of investor assets and then dissipated a portion of those assets, transferring them to Middleton’s personal account.
Furthermore, on August 12, 2019, the court entered an emergency freeze to preserve at least $8 million of the $14.8 million the Defendants raised in 2017 and 2018. The Order required Defendants to propose an Intermediary that was acceptable to the SEC (and to be paid by Defendants) and them within 24 hours, transfer all digital assets to a blockchain address designated by the Intermediary.