The SEC issued a press release recently outlining multiple fraud claims against Veritaseum and its founder and ‘financial guru’, Reginald Middleton. In the statement, they requested from the court an emergency freeze on Veritaseum’s remaining $8 million in assets. Find out everything you need to know about the charges and subsequent Veritaseum price drop.
What is Veritaseum?
Veritaseum is a blockchain-based company led by Founder, Reginald Middleton. According to online advertisements and their website, its vision it to create a “gateway to peer-to-peer capital markets”. They purportedly to do this by offering smart contract services to users wanting access to peer-to-peer capabilities.
Self-described as both the “vendors of new age (smart) contracts” and a “browser for blockchains”, Veritaseum’s project is fueled by their VERI token. The token itself represents prepaid fees for products and services on the platform.
Despite very low scores which were published pre-ICO across the board on ICO tracker and scoring websites, Veritaseum raised $14.8 million in ETH from investors during their 2017 ICO and through subsequent efforts thereafter.
The company also has several other initiatives which they describe on their website, including:
This service allows users to rent their VERI tokens peer to peer. At first glance, it appears this product was designed to skirt exchange regulations. It seems very much like people are using it to exchange VERI tokens, yet the copywriting is clearly worded as “renting”. Instead of buying or selling VERI tokens, you’re just “offering them” or taking others up on their offers.
Another arm of Veritaseum, VeADIR has a rather cryptic mission statement which goes as follows:
“VeADIR is an interactive, digital research vehicle that offers exposures to its vetted research subjects. The research takes advantage of distributed ledger (blockchain) and smart contract technology in that it can be both dynamic and applied. This means the research can and will be actionable by this independent construct in near real time.”
While Mr. Middleton and Veritaseum are adamant that the VERI token was not a security, the SEC has come down hard in delivering multiple charges of fraud and market manipulation. Charge are stemming primarily from marketing efforts, investor communications, and market manipulation.
SEC freezes assets and presses charges
According to the SEC’s press release of August 13, 2019, the SEC accused Veritaseum of manufacturing a fraudulent scheme to sell digital securities. In the statement, they covered two general areas of fraud:
- Violating anti-fraud provisions of US Federal Security Laws by selling illegally to retail investors.
- Violating above laws on the basis of manipulative trading tactics.
The charges included several alleged misrepresentations on Veritaseum’s part. For instance, some of the charges were in relation to the marketing and selling of VERI tokens to retail investors who had misleading information on which to base their investment decision:
- Veritaseum gave investors misinformation regarding their previous business ventures.
- The SEC says they created fictitious investor demand. This includes emails from Reggie Middleton discussing the need to pump the price.
- Veritaseum claimed to already have a product when the SEC says they did not.
Additionally, the SEC charges that Veritaseum, led by Middleton, engaged in price manipulation on an unregulated exchange. Not only that, there are several instances where the SEC accused Middleton of moving investor assets into his personal account.
While the SEC charges are clear, In the case of Kik Interactive, it was also brought to light this week how the SEC presented to the court that omitted crucial and relevant information while grossly taking numerous statements out of context. When a response is made public, we’ll be sure to cover that as well to get as close to the truth as possible.
What the SEC charges mean
On Aug. 12, 2019, a Brooklyn NY federal court initiated an emergency freeze to preserve what was left of Veritaseum’s assets. While investors contributed $14.8 million to buy VERI tokens, the market value for the Veritaseum coin assets is currently at $8 million, all of which has been frozen. The intent is to bring Veritaseum to court in an effort to protect investors, according to the SEO.
According to the SEO statement, charges will result in:
- Permanent injunctions
- Disgorgement (repaying investors) plus interest and penalties
- A barring from ever offering digital securities
The aftermath and Veritaseum’s price drop
Below, you can clearly see the dramatic Veritaseum price dip that happened shortly after the SEC news broke:
The Veritaseum price on the morning of Aug. 13 checked in at $16.50. After the news hit the internet, it fell sharply to just $4.19 before experiencing a slight gain and leveling off at about $5.50. Possibly, the drop was a result of big investors selling off en masse. Because about 12 hours later, the active Veritaseum Telegram community seemed largely unaware of the SEC filings:
No official public announcement was available informing the Veritaseum online community about the SEC news.
Incidentally, at the time of writing, the Veritaseum homepage continued to feature a video with Mr. Middleton explaining that:
“The key to building wealth is to have a high risk/high reward investment.”– Reginald Middleton, Veritaseum
The VERI token and its team have been under SEC scrutiny for many months. During this time, the team placed a statement on their website FAQ page and pinned it in Telegram. As such, their stance on the SEC charges is evident by their response:
“We believe we are a software based consultancy that has not issued unregistered securities, but if forced to comply with SEC regulation as something other than a software vendor, we don’t believe we will have a problem in doing so. Please be aware that we are not regulatory specialists nor securities attorneys, hence this is simply our layman’s opinion.”
By checking the LinkedIn profiles of its team members, the Veritaseum team appears to have extensive experience and a strong reputation in finance. So, in the wake of the recent SEC charges, we reached out to Veritaseum for comment. This was their official reply coming from David Kornblau of Covington & Burling, the counsel for Mr. Middleton:
“This is a meritless action by the SEC and we look forward to proving that in court. Mr. Middleton and Veritaseum have acted appropriately and been truthful about the company’s innovative software platform. While disappointed by the court’s decision to temporarily freeze the company’s assets, we are pleased the judge rejected the SEC’s request to freeze Mr. Middleton’s personal assets.”
Investors worldwide have been waiting on the SEC to create guidelines that allow for growth and innovation in the crypto industry. Thus far, we have seen mostly actions to reduce fraud (as in this case and with Kik/Kin Coin). This makes sense when considering how the Veritaseum price volatility caused by manipulations and court proceedings has a direct effect on investors. But actually laying the regulatory groundwork for the fast growing sector has been a bumpy and often dead-end road up to this point.
Not only that, cryptocurrencies do not act like other securities in many ways. This makes SEC laws inapplicable in many cases, or just plain nonsensical. Yet in the case of Veritaseum, the SEC has laid out ample evidence of the worst kind of corporate behavior when it comes to ICOs and duping investors.
We hope that if these charges hold in court, the investors get their due from the fraudulent digital token sale. And to conclude, we also hope that this case doesn’t negatively effect the many promising projects that raised money via ICO funding.