The Securities and Exchange Commission (SEC) has announced the final judgment in regards to the Veri initial coin offering (ICO) which was deemed to be sales of unregistered securities. Veritaseum, Inc. and Veritaseum, LLC along with Reginald Middleton have been ordered to pay a $9.5 million penalty. The defendants also agreed to an injunction against future violations of the antifraud provisions of the federal securities laws.
In August of 2019, the SEC announced charges against Middleton and his company. The SEC stated Middleton and his firm “sold securities called “VERI” tokens,” inducing retail investors to invest based on “multiple material misrepresentations and omissions.”
At that time, the courts granted an emergency freeze on $8 million in assets of a reported $14.8 million that Middleton allegedly raised in the ICO which took place from 2017 into 2018. Middleton’s Attorney, David Kornblau, a Partner at Covington & Burling, labled the action meritless.
The SEC said the offering included misrepresentations about the potential profitability and viability of Veritaseum’s purported operations, the use of funds raised in the VERI ICO, and the amount of funds raised in the VERI ICO. The SEC also alleged that Middleton manipulated the price and volume of VERI on secondary digital-asset trading platforms during the VERI ICO.
On November 1, 2019, the U.S. District Court for the Eastern District of New York, entered a final judgment against Middleton and Veritaseum on their consent. Pursuant to the final judgment, the Defendants, without admitting or denying the allegations in the SEC’s complaint, are enjoined from further violations of registration provisions, and the antifraud provisions of the Securities Act. Additionally, the defendants are enjoined from participating in any digital-securities offerings.
Middleton is also enjoined from further violations of the market manipulation provision of the Exchange Act.
According to the SEC, all Defendants are ordered to disgorge $7,891,600 in ill-gotten gains from the VERI ICO plus $582,535 in prejudgment interest, and Middleton is ordered to pay a $1,000,000 civil penalty.
Middleton is also permanently barred from serving as an officer or director of a publicly-traded entity.
The final judgment establishes a Fair Fund pursuant to Section 308(a) of the Sarbanes-Oxley Act of 2002 or the “Veritaseum Fair Fund”, and appoints Holland & Knight LLP as distribution agent for the Veritaseum Fair Fund to develop and propose a plan for the distribution of collected assets to victims of Defendants’ fraud.