More Enforcement: SEC Alleges Fraud in Digital Asset Offering that Raised $10 Million

The Securities and Exchange Commission (SEC) has charged Steven Chiang a/k/a Cyrus Kong, Eric Tippetts, James Hardy, and Maurice “Butch” Chelliah in regards to an alleged digital asset offering that has been deemed an unregistered securities offering. According to the other SEC, the defendants raised $10 million through two digital asset offerings.

The SEC alleges that in December 2017, Chiang launched NASGO, a company that claimed to have developed a blockchain-based platform on which clients could use digital asset securities called NSG tokens.

The NSG tokens were sold to the public while apparently misleading investors in regards to the number of tokens sold, the number of users subscribed to NASGO’s platform and the projected value of NSG tokens.

The SEC also alleges that, as interest in NSG tokens diminished, Tippetts and Hardy created a new entity, Sharenode, to promote the NASGO platform.

According to the SEC’s complaint, the defendants misappropriated nearly $4 million of investor funds. The SEC also alleges that Chiang and Tippetts misused additional Sharenode investor funds by spending at least 133 Bitcoin to list NSG tokens on an unregistered trading platform and to fund a team of captive traders to trade NSG tokens amongst themselves to create an appearance of a robust market with increasing prices.

These traders allegedly created the false impression that more than $2.5 million worth of NSGs were traded daily on BitForex during the first 60 days and that the price of NSGs was steadily increasing due to investor demand.

When investors tried to sell their NSG tokens there were no actual buyers causing the token’s trading price and volume to fall.

The SEC seeks permanent injunctions, disgorgement with prejudgment interest, and civil penalties against each defendant, and conduct-based injunctions against Tippetts, Hardy, and Chiang.

The SEC states that Tippetts and Chelliah have consented to settlements, subject to court approval, under which they will be enjoined from violating the charged provisions of the federal securities laws.

Tippetts also agreed to the entry of an injunction against participating in any offering of securities, including any digital asset security, except for purchasing or selling securities for his own personal accounts, and Chelliah has agreed to pay a $75,000 civil penalty.

The court will determine the amounts of disgorgement and prejudgment interest to be ordered against Tippetts and Chelliah, and the amount of a civil penalty against Tippetts, upon future motion of the SEC.

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