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Volume XI, Number 113

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Blockvest Receives “Terminating Sanctions” For Misconduct In SEC Lawsuit Over Illegal ICO

The SEC successfully landed another blow in its ongoing battle with Blockvest, LLC for alleged securities fraud and the sale of unregistered securities.  The Honorable Michael S. Berg, a federal magistrate for the Southern District of California, recommended granting terminating sanctions against the Wyoming-based blockchain company for filing false and forged affidavits with the court.  Terminating sanctions are a severe remedy rarely imposed, except in extreme instances of grossly improper litigation behavior.  Once terminating sanctions are applied, a default judgment is entered against the defending party, depriving it of a trial and generally dismissing the case.

Blockvest found itself under SEC investigation after raising $2.5 million in a pre-ICO sale of tokens that it neither registered with the SEC nor qualified for an exemption from registration.  The SEC’s complaint further alleged that Blockvest not only falsely-claimed to be a “licensed and regulated tokenized crypto currency exchange and index fund,” but also falsely-claimed to be “registered” and “approved” by the SEC—putting Blockvest squarely in the SEC’s crosshairs.

Blockvest has suffered setback after setback in its litigation with the SEC.  In February 2019, the court issued a preliminary injunction against the company for violating antifraud provisions of the Securities Act.  When the SEC later discovered that Blockvest had filed false and forged affidavits in contesting the preliminary injunction, the SEC moved for terminating sanction.  Evidence obtained in discovery not only showed that Blockvest had modified witness declarations and forged their signatures, but had also coached witnesses to lie to the SEC.

The magistrate considered alternative censures against Blockvest, such as monetary and discovery sanctions, but concluded they would be ineffective against Blockvest’s “egregious misconduct” that undermined the integrity of the judicial proceeding altogether.

Blockvest will have an opportunity challenge the magistrate’s recommendation. But considering the allegations of securities fraud, and now, evidence of active litigation fraud, it will have a difficult time convincing a court to not follow Judge Berg’s recommendation.

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© Polsinelli PC, Polsinelli LLP in CaliforniaNational Law Review, Volume X, Number 122
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About this Author

Barrington E. Dyer Principal Intellectual Property Intellectual Property & Technology Litigation Patent Litigation
Principal

Barrington Dyer takes a creative and strategic approach to resolving intellectual property disputes for startups and Fortune 500 companies. He is dedicated to helping clients solve their most complex issues related to the establishment and protection of their intellectual property. Barrington has experience representing clients in a variety of high technology industries, including computer networking devices, semiconductor devices, computer memory, smartphones, mobile apps, computer software and internet-related technologies. He has represented clients in patent, copyright, and trade...

415-248-2147
Stephen A. Rutenberg Shareholder Polsinelli New York Bankruptcy and Financial Restructuring Bankruptcy Litigation Capital Markets ,Commercial Lending ,Debt and Claims Trading, Financial Services, Insolvency, Financial Technology FinTech and Regulation
Shareholder

Stephen Rutenberg’s practice focuses on the intersection of special situations investing and FinTech including cryptocurrency and blockchain technology. 

A significant component of Stephen’s practice relates to his work in the distressed debt market, representing clients in the purchase and sale of loans and securities of distressed and bankrupt companies. Recent representations include advising on the purchase, sale and financing of bankruptcy trade claims in several major chapter 11 cases, including Lehman Brothers, and the MF Global and Icelandic bank liquidations. He works with...

212.413.2843
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