After much deliberation, the SEC handed over a permanent ban for selling securities to David T. Laurance, who tried to raise money through an ICO for Tomahawk Exploration in the summer of 2017. So why is this important? It turns out, David represents the classic get-rich-quick scheme, in which he offered investors a coin which could be converted into equity to benefit from oil drilling opportunities.
However, David did not register the offering with the SEC, per US securities laws, or use an exemption from registration, in order to sell those coins to investors. He also failed to disclose the truth about the company and his own background, which, no surprise, is marred with fraudulent behavior. Thus, the investors were not properly informed prior to the sale. In short, they were duped.
This SEC ruling is important because it is just the tip of the enforcement iceberg when it comes to ICOs. The SEC’s game plan is quite simple: go after the obviously fraudulent ICOs, win settlements, and then go after all of the ICOs that are not obviously fraudulent but failed to properly either register their offering (none did) or use an exemption.
David Laurance put in place a bounty program to sell the tokens in the Tomahawk ICO, which is a marketing scheme used by many ICOs. Bounty programs basically promise people a commission in tokens for anybody who clicks on their social posts promoting the token offering and invests.
However, this type of bounty is illegal. Sure, it’s legal for referring buyers to purchase books on Amazon, for example, but not for the sale of securities because bounty hunters need to be registered representatives and associated with a broker dealer in order to earn a commission.
Also, the promoter, in this case David Laurance, needs to use an exemption from registration, which could be Regulation D 506(c) for accredited investors, Regulation A+ or Regulation Crowdfunding in order to solicit and raise money from the general public. These bounty programs are targeted to the general public and not exclusively to accredited investors, so therefore Regulation A+ or Regulation Crowdfunding would have been appropriate.
As a consequence for not following the securities laws and promoting something that is an obvious fraud, David is going to pay a $30,000 fine and is barred for life from dealing with public securities.
David is clearly a clever marketer. The tag line for his Tomahawk offering was “A True Token of Appreciation.” The goal of the offering was to raise $5M, and clearly it did not work out the way David hoped it would. However, the company did earn a green check mark from the Waves Platform, which could be viewed as a positive sign for investors, one which could signal that the offering is not a scam, which in turn would help with fundraising.
I firmly believe that the SEC enforcement is just at its beginning. I expect many more bulletins from the SEC settling the score with ICOs who sold securities without any regard to regulations this year. The libertarian idea of a crypto utopia in which anyone can buy and sell securities from anyone without any restriction is dead in the water. Those restrictions are in place for a reason and offer protections to both investors and businesses. Thank you the SEC for all of the hard work and help maintain the high confidence in our securities marketplace.
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