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SEC secures a final judgment against Kik Interactive, Inc.

SEC secures a final judgment against Kik Interactive, Inc.
The case against Kik Interactive, Inc. initiated more than a year ago by the SEC has finally come to an end. On October 21st, the SEC secured a final judgment on consent against the company for the unregistered offering of digital tokens “Kin” in 2017.

The allegations brought by the SEC against Kik Interactive, Inc., were based on the activities of the company before and during the ICO. The SEC alleged that by 2017 the business of the company was failing, and Kik Interactive, Inc., intended to finance its new operations by selling one trillion digital tokens. As a result of public and private sales, the company was able to raise about $100 million from investors worldwide.

Although the tokens were released upon the completion of the sale, no product could be used with the Kins. Instead, as the SEC’s alleged, the Kin tokens were marketed as an investment opportunity promising an increasing value of tokens due to the rising market demand driven by the efforts of the company. Kik Interactive intended to keep three million Kin tokens for the company to profit from the trade of tokens on a secondary market along with the investors.

Under the Howey Test used by the U.S. Courts to define securities, any instrument designed for the person to invests his/her money into a common enterprise and expect profit solely from the effort of the promoter could be considered an investment contract, which is one form of the securities. The claims made by Kik Interactive in connection with the sale of its tokens led the SEC to believe that Kik’s ICO was the unregistered securities offering.

Kik Interactive, Inc. attempted to fight the charges at first but then lost a summary judgment in September of this year and agreed to settle with the SEC. As a result, the Kin tokens were found to be securities by the Court, and the company was ordered to pay a hefty fine of five million dollars and to comply with the other non-monetary requirements set by the final judgment.



Summarized by Katrina Arden
Attorney and founder of Blockchain Law Group
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IRS brings tax evasion charges against John McAfee

IRS brings charges for tax evasion against John McAfee
Simultaneously with the SEC, the IRS unsealed their charges for tax evasion and willful failure to file tax returns following the arrest of John McAfee in Spain. The charges relate to the same unlawful activities alleged by the SEC as well as to Mr. McAfee’s consulting work, speaking engagements, and selling rights to his life story for a documentary, for which he allegedly received income but failed to report it and pay income taxes.

The U.S. tax law requires U.S. taxpayers to file an annual income tax return regardless of their country of residence. Willful failure to file a tax return is considered a misdemeanor and can lead to a fine of not more than $25,000 or imprisonment of not more than one year, or both, for each count of violations. The IRS alleged that John McAfee did not file his income tax return from 2014 to 2018.

Moreover, the IRS alleged that Mr. McAfee deliberately directed his income to be deposited into bank accounts and cryptocurrency exchange accounts of other people. According to the IRS, Mr. McAfee also concealed his assets, including real property, a vehicle, and a yacht, in the names of others as an attempt to evade his tax liability. Tax evasion is a much more serious crime and is considered a felony. If convicted, Mr. McAfee can face up to a $100,000 fine or imprisonment for not more than five years, or both, for each count.

John McAfee appears to be fighting all charges brought against him by the U.S. authorities.



Summarized by Katrina Arden
Attorney and founder of Blockchain Law Group
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John McAfee, a famous ICO supporter, is charged by the SEC​

John McAfee, a famous ICO supporter, is charged by the SEC
John McAfee, a legendary computer programmer, who got involved into the blockchain industry during an ICO wave and heavily promoted various tokens, was charged by the SEC for nondisclosure of payments he received for such promotions.

As many blockchain market participants know, John McAfee was very vocal about investing into tokens, supporting, endorsing, and marketing a number of ICOs in his Twitter account and at various conferences. He appeared to be impartial and independent. According to the SEC findings, Mr. McAfee was paid over $23 million in digital assets for such promotions, which he denied. Under the U.S. law, the investors are entitled to know whether the promoters are being compensated by the issuers of securities. Also, the SEC alleges that John McAfee made other false statements misleading the public about his personal investments into certain tokens and his advisory role in some ICOs.

In addition, the SEC claims that John McAfee was also involved in another scheme of touting certain tokens he had accumulated on Twitter and then selling those tokens as prices rose. This was essentially a "pump-and-dump" practice, which is illegal under the U.S. securities law.

As a result, the SEC charged John McAfee and his bodyguard Jimmy Watson Jr., who assisted him in these cases with violating antifraud provisions of the federal securities laws, McAfee with violating the anti-touting provisions, and Watson with aiding and abetting McAfee’s violations. The SEC seeks permanent injunctive relief, conduct-based injunctions, return of allegedly ill-gotten gains, and civil penalties in addition to bar McAfee from serving as a public company officer and director.

The complaint against John McAfee and Jimmy Watson, Jr. was filed in the U.S. District Court for Southern District of New York.



Summarized by Katrina Arden
Attorney and founder of Blockchain Law Group
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$1.2 billion has to be returned to investors by Telegram

$1.2 billion has to be returned to investors by Telegram
The SEC obtained a court approval of its settlement with Telegram Group, Inc. and its subsidiary TON Issuer Inc. ("Telegram") on charges that ICO of the token Gram violated the U.S. securities laws. Under the settlement, Telegram agreed to return more than $1.2 billion to investors and pay a whooping amount of civil penalty equal to $18.5 million.

In 2018, Telegram had an ICO raising funds to finance its operations and develop its own blockchain. The tokens were not available to everyone but rather to a few sophisticated investors. In its complaint, the SEC alleged that Telegram sold approximately 2.9 billion Gram tokens to 171 investors worldwide in an effort to raise capital to finance its business. This turned out to be the largest ICO to this date. However, the sale was conducted without necessary disclosures and registration, in violation of the U.S. securities law.

One of the biggest concerns of the SEC was unlawful distribution of Grams to the secondary market. "Our emergency action protected retail investors from Telegram's attempt to flood the markets with securities sold in an unregistered offering without providing full disclosures concerning their project," said Lara Shalov Mehraban, Associate Regional Director of the New York Regional Office.

The complaint was filed in the U.S. District Court for the Southern District of New York. Telegram attempted to fight the SEC arguing that the sale of Grams did not fall under the U.S. securities laws and regulations.

The interesting fact about this case was that the U.S. Commodity Futures Trading Commission (CFTC) had provided its own opinion letter reminding everyone that it defined digital currencies as commodities. However, it stated that commodities and securities are not always mutually exclusive. The CFTC also refrained from expressing any view on application of the U.S. securities law to Grams.

The Court ruled in favor of the SEC and issued a preliminary injunction blocking Telegram from distributing its Gram tokens to the purchasers. Also, it denied the company's request to exclude non-U.S. token holders from the Order.

Telegram appealed but eventually agreed to a settlement with the SEC without admitting or denying the SEC's allegations. As a result of the settlement, Telegram was ordered to disgorge $1,224,000,000 of gains from the sale of Grams and pay a civil penalty of $18,500,000 making it the largest amount in token related enforcement actions brought by the SEC.



Summarized by Katrina Arden
Attorney and founder of Blockchain Law Group
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Another California company is ordered to return money to investors

Another California company is ordered to return money to investors
The SEC continues to investigate companies that conducted ICOs in 2017 and 2018. Recently, the SEC brought charges against BitClave PTE Ltd., which had an ICO of the Consumer Activity Tokens (Cat) token in the third quarter of 2017. According to the SEC, BitClave sold Cat tokens to approximately 9,500 investors, some of whom were in the U.S.

As was referenced in the BitClave's offering documents, the company was planning to use the ICO proceeds to develop, administer, and market its blockchain-based search platform for targeted consumer advertising. In addition, in its Cat marketing campaign, BitClave PTE Ltd. emphasized its expectation that the tokens would increase in value, and took steps to make the tokens available for trading on secondary exchanges after the ICO. All of the above made Cat token a security, which sale should have been registered with the SEC.

BitClave decided to wind down its operations, delist Cat tokens, and agreed to settle the charges and pay disgorgement of $25,500,000, prejudgment interest of $3,444,197, and a penalty of $400,000. BitClave also agreed to transfer all remaining Cat tokens in its control to the fund administrator for permanent disabling, publish notice of the order, and request removal of Cat tokens from all digital asset trading platforms.



Summarized by Katrina Arden
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SEC obtained a $9.5 million judgment to protect VERI investors

SEC obtained a $9.5 million judgment to protect VERI investors
A good victory for the SEC against Veritaseum, Inc., Veritaseum, LLC and Reginals Middleton, their owner, came in a form of the final judgement ordering a payment of nearly $9.5 million.

According to the SEC’s complaint filed just a few month ago, the above-referenced market participants made millions of dollars from the sale of unregistered securities named “Veri” based on a number of false and misleading statements about potential profitability of the company’s operations, the future use of funds and the amount of raised funds. The SEC also alleges that Mr. Middleton manipulated the price and volume of Veri on secondary market during the Veri ICO.

As a result of the great work made by the SEC, both Veritaseum companies and Mr. Middleton were ordered to disgorge $7,891,600 in ill-gotten gains from the Veri ICO plus $582,535 in prejudgment interest. In addition, Mr. Middleton was ordered to pay a $1,000,000 civil penalty and was permanently barred from serving as an officer or director of any publicly traded entity.



Summarized by Katrina Arden
Attorney and founder of Blockchain Law Group
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SEC issues Investor Bulletin warning about ICO
Following the investigation of The DAO, the SEC issued an Investors Bulletin, which explained the nature of the Initial Coin Offering and warned public that some of the tokens issued on blockchain could be securities required to comply with the U.S. securities law.

The SEC provided key points to consider when determining whether to participate in an ICO or not, such as:

— Check if the tokens are registered as securities and their offering is performed in compliance with the U.S. securities laws and regulations;
— Check if the promoters of the tokens are licensed or registered to offer and market securities, if the offered tokens are securities;
— Ask if the blockchain is open to public and whether it has been independently audited;
— Verify the facts and use good judgement when the offer is too good to be true;
— Be aware that digital tokens and currencies may be susceptible to fraud, technical glitches hacks, or malware.

The SEC also warned that the recovery could be limited for multiple reasons.

Unfortunately, there have been many ICOs performed in violation of the U.S. federal and state securities laws. The token buyers should be very careful when they are offered to invest in tokens and to expect a profit, when sale of such tokens is not registered with the securities authorities.



Written by Katrina Arden
Attorney and founder of Blockchain Law Group
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SEC is going after Kik Interactive for selling unregistered Kin tokens

SEC is going after Kik Interactive for selling unregistered Kin tokens
Earlier in 2017, Kik Interactive created one trillion of digital Kin tokens and sold it to U.S. investors to finance its operations. The SEC alleged that by that time, the company's business was failing and there was no product that could be used with the Kin tokens. Also, the SEC’s complaint alleges that Kin tokens were marketed as an investment opportunity promising an increasing value of tokens due to the rising market demand driven by the company’s efforts.

Kik Interactive intended to keep three million Kin tokens for the company to profit from the trade of tokens on a secondary market along with the investors. The claims made by the company required registering Kin tokens as a security, which Kik Interactive failed to do.

As a result of selling unregistered securities, the SEC is seeking a permanent injunction, disgorgement plus interest, and a penalty.



Summarized by Katrina Arden
Attorney and founder of Blockchain Law Group
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The name of Blockchain Law Group is being misused by fraudsters

The name of Blockchain Law Group is being misused by fraudsters
We became aware that the name of Blockchain Law Group and its founder Katrina Arden, who is a licensed attorney, is being used in connection with the false claims of ICO escrow.

It had been a recent trend among the fraudulent ICO to claim affiliation with the reputable organizations, including the Securities and Exchange Commission (SEC) and the Commodity Futures Trading Commission (CFTC), to lure the investors in. Fraudsters post logos and names of the organizations on the web-sites claiming their various participating roles in the ICOs. Unfortunately, many investors believe the information without verifying it with the organizations.

Sometimes, we gained information about an unauthorized and misleading use of the name of Blockchain Law Group and attorney Katrina Arden from the investors who call or email us to verify our participation as an escrow. In such cases we immediately send a Cease-and-Desist letter. However, some of the instances go unnoticed until the fraudulent ICO is over. Many times, fraudsters are non-U.S. persons, who live and conduct their unlawful activities outside of the U.S. to avoid being brought to justice by the U.S. authorities.

Please be aware that such companies as Insolar, Genexi, KYC.Legal, Coinlancer, INS Ecosystem, S3ntigrapH, Bitcoin Coral, Cero Coin, Vanig, Femergy, Virtual Arena, and PayTezo have never been provided escrow services by Blockchain Law Group nor attorney Katrina Arden. There could be more fraudulent claims, which we are not aware of yet. If you see anyone claiming any involvement of Blockchain Law Group or attorney Katrina Arden into an ICO, please let us know by contacting us via a phone number or a contact form on this website. Please help us fight fraud.



Written by Katrina Arden
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Diamond business ICO and Ponzi scheme halted by the SEC

Diamond business ICO and Ponzi scheme halted by the SEC
The SEC announced that it obtained a court order against Natural Diamonds Investment Co., Eagle Financial Diamond Group Inc A/K/A Diamante Atelier, Argyle Coin, LLC, Jose Angel Aman, Harold Seigel, and Jonathan H. Seigel (“Defendants”) alleging a $30 million Ponzi scheme conducted with the use of fraudulent ICO.

According to the SEC complaint, in 2017, the Defendants performed an ICO of Argyle Coin promising the investors a risk-free investment backed by colored diamonds and the use their funds to develop the cryptocurrency business. The sale of Argyle Coin was not registered with the SEC.

In addition, in early 2014, Mr. Aman already had been selling unregistered securities to investors with similar promises of return based on the company’s investment in diamonds. That offering was not registered with the SEC either.

And instead of investing in diamonds as was promised to the ICO investors, the Defendants misused and misappropriated more than $10 million of raised funds to pay prior investors their purported returns, which constitutes a Ponzi scheme, and to pay for Mr. Aman personal expenses, including rent of his home, purchases of horses, and riding lessons for his son. The complaint charges Defendants with various violations of the securities law. The SEC's complaint seeks disgorgement of allegedly ill-gotten gains and prejudgment interest from Natural Diamonds, Eagle, Argyle Coin, Aman, Harold Seigel, and the relief defendants, and financial penalties against Natural Diamonds, Eagle, Argyle Coin, Aman, Harold Seigel and Jonathan H. Seigel.



Summarized by Katrina Arden
Attorney and founder of Blockchain Law Group
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SEC issues another warning on the SEC approved offerings

SEC issues another warning to investors on the SEC approved offerings
The SEC Office of Investor Education and Advocacy issued an investor alert warning the investors against false statements regarding the SEC “approved” issuance of securities. In this document, the SEC explained how fraudsters can mislead the investors by claiming the following:

1. Submission of the documents to the SEC.

The SEC clearly states that submission of any documents by a company does not mean an approval. The SEC cannot and does not “approve” an investment. The SEC only ensures that the companies comply with the law in regards to their disclosure obligations. The SEC does not evaluate whether the issued securities are a “good” investment. Investors should make their independent judgement in evaluating the investment opportunity.

2. Use of forms to lure the investors.

The SEC warns that fraudsters my use various official forms to make false declarations regarding registration with the SEC or security issuance approved by the SEC. They may use the statements of “formal registration with the SEC” to make their offering more attractive to investors. Investors should check the SEC’s EDGAR database to verify registrations.

To summarize, when you see a claim that the SEC has approved any ICO, it should be a sign of fraud. No official government agency in the U.S., including the SEC, has an authority or power to approve any coin offerings. It is a good idea to verify all information prior to investing in securities.



Summarized by Katrina Arden
Attorney and founder of Blockchain Law Group
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