The SEC has filed an emergency lawsuit against Veritaseum (VERI) and its founder Reginald Middleton with the New York Eastern District Court. The action aims to prevent Mr. Middleton from spending $8 million USD raised by the company in an ICO.
“Knowingly Misled” VERI Investors
The SEC alleges that Mr. Middleton “knowingly misled” investors about prior business success in order to increase investor demand for VERI tokens. The SEC also claims that Veritaseum made manipulative trades to increase the value of VERI tokens. The value of Veritaseum, the world’s 15th largest cryptocurrency, has fallen nearly 45% in the aftermath of the news.
This emergency action seeks to prevent Mr. Middleton from dissipating $8 million USD, which remains from approximately $14 million USD that was allegedly defrauded from investors between 2017 and early 2018. The news comes just one day after CipherTrace, a leading cryptosecurity company, reported that crypto criminals had taken an astounding $4.3 billion USD in 2019 alone.
A Series of Secret Trades
Mr. Middleton had falsely claimed that Veritaseum had products ready to go in order to drive investor interest, as well as placing a series of secret trades after the ICO, which artificially bumped VERI’s price by more than 300% in just one day of trading. Mr. Middleton also misappropriated $520,000 of funds raised during the ICO for his own personal use.
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According to the SEC, Mr. Middleton attempted to avoid SEC registration requirements by claiming VERI tokens to be “pre-paid fees,” “software,” or “gift cards.” The SEC initially told the defendant’s lawyers they were likely to recommend filing of an enforcement action. However, after this the defendant “moved more than $2 million in remaining offering proceeds from a blockchain address they controlled into other addresses, and used a portion of those funds to purchase more precious metals.” When asked not to spend any more of the allegedly fraudulent funds, the defendant refused.
The SEC is now seeking an order to freeze the defendant’s assets in order to prevent the dissipation of any more funds.
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