SEC Charges ‘Guru’ in Alleged Fraudulent Digital Token Offering
The SEC has filed fraud charges against a self-described “financial guru” and two companies he controlled, alleging they engaged in a fraudulent scheme to sell digital securities to investors and to manipulate the market for those securities.
The regulator filed charges against Reginald “Reggie” Middleton of Brooklyn, New York, and two entities he controls, Veritaseum, Inc. and Veritaseum, LLC, which are collectively known as Veritaseum. In court documents, the SEC referred to Middleton as “a self-styled financial guru” who started a blog in 2007 making predictions about publicly traded companies. It says he claims to have foreseen the financial crisis and the collapse of Bear Stearns and Lehman Brothers.
The regulator’s complaint, filed in federal court in Brooklyn, alleges that the defendants marketed and sold securities called “VERI” tokens on the internet, luring retail investors to invest based on multiple material misrepresentations and omissions.
Middleton allegedly knowingly misled investors about a prior business venture and the use of offering proceeds, touted oversized investor demand for VERI that didn’t exist, and falsely claimed to have a product ready to generate revenue. The complaint alleges Middleton manipulated the price of the VERI tokens trading on an unregistered digital asset platform.
According to the complaint, the defendants’ misstatements to the market had a “marked effect” on the price of VERI, which “rose exponentially” to more than $300 by the end of July 2017 from their ICO sales prices of $1.60 to $8. It also alleged that Middleton misused investor funds, including those of an unnamed “connected political figure.”
The complaint alleges Middleton received $1 million from the mystery politician, which court documents refer to as Investor One, in order to help Middleton further fund his business. However, the SEC alleges Middleton directed $450,000 of that to his personal accounts and used another $100,000 to make a campaign contribution to an unnamed candidate.
The SEC also said Middleton never disclosed to investors that he would pay himself a “salary” by converting proceeds into dollars and spending them, at least in part, on personal expenses, or commingling them with personal assets.
As a result of the charges, 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.
The SEC’s complaint charges Middleton and Veritaseum with violating the registration and antifraud provisions of the US federal securities laws, and charged Middleton with also violating the antifraud provisions on the basis of his manipulative trading. The complaint seeks permanent injunctions, disgorgement plus interest and penalties, and a bar from offering digital securities. For Middleton, the SEC also seeks an officer-and-director bar.
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