SEC Halts Sale of LOCIcoins

Each day it seems investors and the public debate the merits of crypto coins. Some firmly believe that bitcoin and others are the future of currency. Others believe they are worthless. Countries are the same. Some permit trading in the coins as in the U.S. Others prohibit the use of the coins such a China which has become a major source of mining despite the ban. Which ever side of the debate one selects, two points seem to be clear. Crypto coins continue to increase in popularity, at least according to a report released last week by the UK’s Financial Conduct Authority. And, hucksters continue to capitalize on the trend by conducting offerings of fraudulent coins as illustrated by the Commission’s latest case in the area. In the Matter of Loci, Inc., Adm. Proc. File No. 3-20369 (June 22, 2021).

Respondent Loci was formed in Reston, Virginia in 2016 by John Wise, also a Respondent, who served as CEO of the firm which is now nearly defunct. Over about a three-year period, beginning in August 2017, Respondents raised capital selling digital tokens called LOCIcoin through an ICO. At the time InnVenn, a trading platform created by Loci, permitted its registered users to access the platform through unpaid or free subscriptions. Respondents planned to use part of the ICO proceeds to expand the capabilities of the trading platform.

A presale of the coins began in August 2017. Initially LOCcoin was sold in exchange for Ether using Simple Agreements for Future Tokens or FAFTs. To generate interest a white paper was sent directly to potential purchasers and made available on social media. The focus was on investor profits that would be generated through InnVenn where the coins would be traded beginning shortly after the close of the ICO. Respondents also sought to initiate trading of the coins on other platforms

Since investor profits were a key part of the sales pitch, Loci and Mr. Wise told potential investors about the experienced management team and potential profits. For example, in August 2017 a pitch deck and one version of the white papers contained growth statistics for the venture and potential revenues. The statistics were also included in marketing materials. The information was false. Other false information was disseminated such as statistics on and claims about investors in the coin. The Order alleges that the interests marketed were actually unregistered investment contracts and the false statements constituted fraud. The Order alleges violations of Securities Act Sections 5(a), 5(c) and 17(a) and Exchange Act Section 10(b).

Respondents resolved the proceedings, consenting to the entry of cease-and-desist orders based on the Sections cited above. Respondents will also comply with their undertakings which require, among other things, the destruction of all the coins and not engaging in future offerings. Mr. Wise was also ordered to pay disgorgement of $38,163 and prejudgment interest of $6,209.40, payment of which is waived based on financial condition. Respondent Loci was directed to pay a civil penalty of $7,600,000. The funds may be distributed by the Commission.

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