Digital Assets, Multilevel Marketing Operations Defraud Investors
Digital assets, which began with the idea of “getting off the grid,” are now fighting for a seat at the grid’s table. The assets remain controversial. Some firmly believe in them; others do not. Regardless of your view, there is no doubt that they can represent a store of value. Equally clear is the fact that the assets are extremely volatile. Yet the assets received a huge boost earlier this week when President Biden issued an Executive Order to ensure responsible development.
At the same time, regulators who monitor the assets, including the Commission, the CFTC, FinCEN and others, have often brought enforcement actions centered on law violations which at times include fraud. The Commission’s most recent case in this area centers on a two-pronged fraud – one based on a multilevel marketing scheme and the other tied to an offering of what were called Ormeus Coins. SEC v. Barksdale, Civil Action No. 1:22-cv-1933 (S.D.N.Y. Filed March 8, 2022).
Named as defendants in the action are John Barksdale and his sister JonAtina Barksdale. John, a U.S. citizen living in Thailand, is the founder and primary entrepreneur behind a firm called Ormeus Global S.A. and its digital tokens, Ormeus Coin or ORME. Sister JonAtina, or Tina, is a U.S. citizen living in Hong Kong. She controls the company along with her brother.
In just a few months beginning in June 2017, Brother and Sister raised millions of dollars from thousands of investors by offering and selling unregistered securities in the form of subscription packages in Ormeus Global, S.A., a multi-level marketing business. Also sold were unregistered securities in the form of the digital asset Ormeus Coin. The subscription packages included access to a learning portal about digital assets, funds pooled and invested into a digital asset trading system and the tokens of Ormeus Coin. Through the firm Defendants marketed a trading system as a proven program. Returns to investors were supposedly as high as 160% of the initial investment.
Through Ormeus Global, a company organized in Panama on September 4, 2017 and based in Hong Kong, Defendants marketed the Ormeus Coin to investors. Part of the sale pitch claimed the Ormeus Coin would permanently place 40% of the profits from the digital assets mining business tied to the coin into digital asset wallets called Ormeus Reserve Vault. This would support the Ormeus Coin investors were told. They were also informed that the wallet would be displayed on a firm website. In fact, the wallet displayed belonged to a third party.
Defendants marketing pitch contained other false claims. To portray the firm as successful the digital assets were displayed on the website and were represented to be worth over $190 million in November 2021. In fact, the actual digital wallets were worth less than $500,000 as of that date. The website also displays a letter which claimed that the digital mining operations of Ormeus Coin were among the largest in the world and included facilities in North America.
During the period surrounding the road show Defendants engaged in manipulative trading of Ormeus Coin to boost the price. Coordinated trading was used to inflate the price of the coin. Overall Defendants raised at least $124 million from over 20,000 investors in the United States and various countries around the world. Defendants have used millions of dollars of investor cash for their personal benefit. The complaint alleges violations of Securities Act Sections 5(a), 5(c) and 17(a) and Exchange Act Section 10(b). The case is pending. See Lit. Rel. No. 25341 (March 8, 2022).