Three men including one from Florida have been charged in a scheme to defraud investors of over $100 million in proceeds according to a recent indictment. The men operated a company known as EmpiresX and solicited investments on the basis of initial coin offerings (ICOs).
For those of you who are not tech-savvy, an ICO is similar to an IPO insofar as it is a security that represents the value of the stake. However, not all ICOs are securities. Security tokens are essentially identical to IPOs but they operate on blockchain technology. When you purchase a security token, you are ostensibly purchasing a stake in a real company. For that reason, security tokens are regulated by the SEC.
Utility tokens, on the other hand, offer some benefit from the company such as discounts, services, or the right to purchase a stake later. They are not regulated by the SEC. In this case, the men were offering security tokens for a company that had produced, among other things, a bot that made trades that could generate guaranteed revenue. These, among other false allegations, became the groundwork for the fraud prosecution.
While the tech may sound novel and confusing, the scheme itself was a basic Ponzi-style scheme. Proceeds were paid to older investors from the contributions of newer investors. The three men have been charged with wire fraud, and securities fraud and two of the men have been charged with conspiracy to commit money laundering.
Understanding the charges
Money laundering and wire fraud both carry a maximum sentence of 20 years each. Securities fraud carries a maximum sentence of 25 years. In cases like this, the sentencing guidelines are attached to the amount of money stolen. Since there is over $100 million in proceeds from the fraud, you can expect that the defendants will likely face sentences on the higher end of the sentencing spectrum than the lower end.
Nonetheless, the government still has to establish that the men lied to investors concerning their ICOs, the purpose of their ICOs, and the promises they made to investors. They will also need to establish that the company was indeed offering a security token as opposed to a utility token, at least if they want to make the securities fraud charges stick.
While this is a pretty cut-and-dried case of fraud, not all criminal defendants understand what they’re doing when they offer an ICO, the rules and regulations governing security tokens, and the fact that security tokens fall under the domain of the SEC. It feels like only a few years ago that the government was trying to ban Bitcoin and related “digital currency” on the basis that it competed with American currency. Today, digital currency is a major investment opportunity for big-time investors and laypeople alike.
Talk to a West Palm Beach Criminal Defense Attorney
Did your ICO not go the way you planned? The Skier Law Firm, P.A. represents the interests of those charged with white-collar crimes in federal prosecutions. Call our West Palm Beach criminal lawyers today to schedule an appointment and we can begin discussing defense strategy immediately.