Alleged Cryptocurrency Scam Serves as Reminder of Digital Assets Risks

WHAT HAPPENED?

On Aug. 13, 2019, the Securities and Exchange Commission issued a press release regarding charges against Reginald “Reggie” Middleton and his two companies, Veritaseum, Inc. and Veritaseum, LLC. The complaint, filed in Brooklyn, New York, alleges that Middleton and his companies knowingly defrauded customers through the trade of a cryptocurrency called VERI tokens.

Middleton supposedly misled investors by advertising inflated demand for VERI tokens, in part by increasing the price of the cryptocurrency on an unregistered trading platform. In 2017 and 2018, the group raised over $14.8 million for several Veritaseum products.

On July 30, 2019, Middleton was informed by the Commission that it was likely he and his companies would be subject to an enforcement action. The following day, Middleton transferred over $2 million into a personal account. The Commission responded by filing in federal court for an emergency freeze of Veritaseum’s remaining $8 million in assets.

Middleton and Veritaseum were charged with violating federal securities laws including antifraud provisions. In the complaint, the Commission states it is seeking disgorgement, penalties, and restriction from Veritaseum offering digital assets.

WHAT DOES THIS MEAN FOR ME?

The Office of Compliance Inspections and Examinations named digital assets as one of its 2019 Examination Priorities. If your firm offers, trades, manages, or sells cryptocurrencies, be aware that OCIE may be more likely to initiate an exam. Fairview is staying informed of the latest regulations and news regarding these securities; contact us with questions about compliance with digital asset regulations.

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