
SEC Freezes $8M in Assets in Alleged Fraudulent Token Offering Scheme - Dowwie
https://www.sec.gov/news/press-release/2019-150
======
rolltiide
> The SEC filed charges against Reginald “Reggie” Middleton, a self-described
> “financial guru,”

WOAH they went after Reggie Middleton!

Yeah that should be in the title.

From "TheBlockCrypto.com"

> What appears to have precipitated this filing, in part, is that after the
> SEC told Defendants’ lawyers that they were likely to recommend filing of
> enforcement action, Defendants “moved more than $2 million in remaining
> offering proceeds from a blockchain address they controlled into other
> addresses, and used a portion of those funds to purchase more precious
> metals.” When asked by staff to not spend any more of the SEC funds,
> Defendants refused.

> [https://www.theblockcrypto.com/2019/08/13/sec-files-
> emergenc...](https://www.theblockcrypto.com/2019/08/13/sec-files-emergency-
> lawsuit-against-veritaseum-to-stop-spending-millions-of-dollars-in-ico-
> money/)

So this is interesting in that there was active discussion between the SEC and
Reggie's lawyers.

This is different than most of these press releases.

~~~
elliekelly
Wow, that complaint is kind of nuts. The SEC is accusing him of just about
every major financial crime imaginable.

But the "Related Individuals and Entities" section broke my heart:

> Employee One, age 18, has worked for Veritaseum since 2017.

Stealing/embezzling money is disgusting enough but he very well could have
ruined this 18 year old kid's life. I generally find the SEC to be pretty
reasonable so I would imagine the kid is only included so they can't transfer
funds either but I really hope this kid/kid's parents were smart enough to get
a lawyer and cooperate.

~~~
PeterisP
Does that imply that he was 16-17 old minor at the time when the crimes were
committed?

~~~
elliekelly
The major crimes, yes, but unless they had a birthday in the last two weeks
they were a legal adult when the company moved funds after hearing that the
SEC was preparing to bring charges.

------
russdpale
Good, time to start cracking down on all of the scams so the space can
actually flourish.

~~~
javert
I disagree. For me, being barred by the government from making an investment
is a bug, not a feature.

Although it isn't obvious, I would hold that this is true for any rational
investor.

In reality, these sorts of regulations only exist to keep reckless people from
losing money that they already treat as disposable.

That is not a valid reason to block the freedom of genuine investors.

~~~
arcticbull
> This is true for any rational investor.

> These sorts of regulations only exist to keep reckless people from losing
> money.

No. It's not. You're barred from investing in fly-by-night scams unless you
have more than enough money to do so comfortably. If a poor person, who is
naturally desperate to make money, is conned by a snake oil salesman, you know
who pays? Literally everyone. They end up on the social safety net collecting
on our taxes. As such the public has an interest in making sure, to a
reasonable extent, that only those capable of taking huge financial risks do
so.

Now if your company is established enough to provide the required quarterly
disclosures by SEC regulations, sweet. Anyone can invest their last penny.
Seems like a fair place to draw the line.

> That is not a valid reason to block the freedom of genuine investors.

I agree, if you mean a "genuine investor" has over $1M in assets excluding
their primary residence or a previous years income in excess of $200K and an
expectation they will have the same in the coming year.

Accredited investor rules weren't brought in because too many poors were
hitting it big and all those new yachts were clogging up Boston Harbor.
Literally because not having them _caused the great depression_. And they
didn't call it that because it was just a pretty good depression, ya know.

~~~
LiquidSky
The cryptocurrency boom has been people painfully re-learning why we have
these regulations in the first place.

~~~
mmilgauss
>"We don't need no government regulators!"

 _Gets frauded_

>"Where were theeeyyyy to save us?!"

~~~
arcticbull
Literally though.

> Regulations are bad!

 _gets defrauded_

> HELP POLICE! SEC! FTC! DOJ! How was this permitted in the first place?!
> Where was the government when we needed them!

Privatized gains, socialized losses.

~~~
mmilgauss
Turns out the government does actually protect people in first-world countries
in ways we simply take for granted... Huh who woulda thought!

------
jonas21
Any idea who Investor One is (according to the complaint, they're a "connected
political figure")?

~~~
michannne
He's pretty popular. I've seen him mentioned in various other SEC court
documents

------
charlesdm
An "emergency freeze" of moneys that were raised in 2017 and 2018...

On Aug. 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 in an
offering of digital securities."

~~~
FireBeyond
"What appears to have precipitated this filing, in part, is that after the SEC
told Defendants’ lawyers that they were likely to recommend filing of
enforcement action, Defendants “moved more than $2 million in remaining
offering proceeds from a blockchain address they controlled into other
addresses, and used a portion of those funds to purchase more precious
metals.” When asked by staff to not spend any more of the SEC funds,
Defendants refused."

------
novalis78
Mr Middleton sat next to me during the Ethereum launch at the TNAB in Miami in
2014. He was very excited about all the possibilities Bitcoin and
cryptocurrency would usher in. His pet project then was a platform to allow
kids in Africa buy and sell shares reflecting the US stock market. The idea
was to globalize investing by tokenizing shares. Very innocent beginnings and
dreams of a better, more financially enabled world. This report sounds like a
lot changed since.

~~~
LiquidSky
Innocent beginnings? It sounds exactly like he planned to commit securities
fraud by preying on one of the world's most vulnerable populations. And if
what commenters below are saying is correct, that he continued to move money
around even after being directly ordered not to by the SEC, he is a
particularly stupid and/or arrogant con man.

The only possibilities cryptocurrency has ushered in are new ways to scam
people. Or rather, digital versions of old scams. Involvement in
cryptocurrency should be prima facie evidence of fraud.

~~~
darawk
> Innocent beginnings? It sounds exactly like he planned to commit securities
> fraud by preying on one of the world's most vulnerable populations

What sounds like securities fraud about that original idea?

~~~
arcticbull
The reasons folks would or would not be able to trade is:

(0) Having money to invest.

(1) Access to the internet.

(2) Being able to afford the transaction fee.

(3) Being on a list of people who can't trade like OFAC or failing AML/KYC, or
being underage.

The only one blockchain addresses is (3): granting access to people who aren't
permitted to trade. Every single other thing is either a social problem,
already a solved problem or can easily be addressed without the magic of the
blockchain.

~~~
darawk
Or being someone without access to a bank account, or without proper means of
identifying yourself. Which applies to a substantial number of people in
Africa.

~~~
arcticbull
Are you sure? How much do you know about banking in Africa? I know that I
personally don't know much, which is why I don't offer solutions -- but what I
do know is that services like Flutterwave and M-Pesa [2] are absolutely
killing it.

[1]
[https://money.cnn.com/2017/07/31/technology/business/flutter...](https://money.cnn.com/2017/07/31/technology/business/flutterwave-
africa/index.html)

[2] [https://www.forbes.com/sites/tobyshapshak/2018/11/27/how-
mob...](https://www.forbes.com/sites/tobyshapshak/2018/11/27/how-mobile-money-
continues-to-boom-in-africa/#69317ca8205c)

~~~
darawk
Those businesses are succeeding exactly because of the lack of
banking/identification access in Africa. They use phones as the axis of
identity, which people do have (somewhat) ubiquitous access to. However that
doesn't make it easy to access the US stock market, which is why this guy's
concept would have been useful to them.

~~~
arcticbull
You can't access the US stock market without SEC regulation thanks to the
Securities and Exchange Act of 1934. No amount of blockchain is going to
change that.

~~~
darawk
According to US law, you mean. However, nothing stops a foreign entity from
creating derivatives pegged to the price of US stocks. Which is exactly what
this guy was attempting to do.

~~~
arcticbull
Owning stock conveys beneficial ownership share, pays dividends, etc. This is
strictly worse.

~~~
darawk
Worse than what? Their alternative is owning nothing at all. And derivatives
are just fine - they can be pegged to the dividend adjusted value of the
asset.

~~~
arcticbull
It's not an investment, it's gambling. I'd suggest that's probably not the
best use of capital for what you identify as an impoverished group.

~~~
darawk
How exactly is a single-stock future any more gambling than investing in that
stock directly?

