District Court Says SEC Must Do More To Prove That ICO Was A Security

In denying a Motion for Preliminary Injunction, the U.S. District Court of the Southern District of California determined that the SEC failed to show that an initial coin offering ("ICO") satisfied the characteristics of a "security."

The SEC's complaint alleged that Blockvest, LLC ("Blockvest") and its founder, Reginald Buddy Ringgold III, have been offering and selling securities in the form of digital assets called BLVs. According to the SEC, the defendants falsely claimed that the ICO was "licensed and regulated" by any of the regulatory agencies, including the SEC, CFTC and National Futures Association. Further, the SEC alleged that Blockvest and Mr. Ringgold created a fictitious regulatory agency, with its own fake government seal, logo and mission statement.

The Court found that there were disputed issues of material fact and, therefore, that the SEC was unable to adequately prove that the BLV tokens are securities under the federal securities laws at this stage of the proceedings. Further, in denying the injunction request by the SEC, the judge noted that Blockvest and Mr. Ringgold had previously consented to not pursue the ICO and that the SEC failed to prove the likelihood of repeated wrongdoing on the part of Blockvest and Mr. Ringgold as would be required to grant a preliminary injunction.

Commentary / Steven Lofchie

This is not a case of broad precedential value; i.e., it most certainly does not stand for any general proposition that ICOs are not securities. It just held that, under the very particular circumstances of this case, the particular ICOs were not securities, or had not yet reached the point, in light of the status of the offering, where they could be considered securities.

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