Court orders crypto “guru” Reginald Middleton and his company Veritaseum to pay $8.4m in disgorgement

Maria Nikolova

Middleton is also liable for a civil penalty in the amount of $1 million.

Judge William F. Kuntz of the New York Eastern District Court has approved a motion for a consent judgment in a securities fraud case targeting self-proclaimed financial “guru” Reginald Middleton and his companies Veritaseum, LLC and Veritaseum, Inc.

The parties in this case, as FinanceFeeds has reported, have indicated that they are in engaged in settlement talks, so the consent judgment has been expected.

According to the Order, signed on October 31, 2019, the defendants are jointly and severally liable for disgorgement of $7,891,600, representing certain profits gained as a result of the conduct alleged in the Complaint, together with prejudgment interest thereon in the amount of $582,535, for a total of $8,474,137. Middleton is liable for a civil penalty in the amount of $1,000,000.

The consent judgment also prohibits Middleton is prohibited from acting as an officer or director of any issuer that has a class of securities registered pursuant to Section 12 of the Exchange Act or that is required to file reports pursuant to Section 15(d) of the Exchange Act.

In addition, the defendants are prohibited from engaging in any offering of digital securities.

The defendants are also permanently enjoined from violating SEC rules in the offer or sale of any security by the use of any means or instruments of transportation or communication in interstate commerce or by use of the mails, directly or indirectly to employ any device, scheme, or artifice to defraud.

In this lawsuit, brought by the Securities and Exchange Commission (SEC), the defendants are alleged to have raised $14.8 million by making material misrepresentations and omissions about the unregistered securities they offered: digital assets called “VERI Tokens,” “VERI,” or “Veritas.” The defendants are said to have conducted this offering in a so-called initial coin offering (ICO) that took place from April 25, 2017 to May 26, 2017, and in post-ICO offers and sales.

According to the SEC’s Complaint, the defendants knowingly misled investors about their prior business venture and the use of offering proceeds; touted outsized investor demand for VERI; and claimed to have a product ready to generate millions of dollars of revenue, when no such product existed; placed a series of manipulative trades in VERI Tokens to increase their price and to induce investors to buy more tokens; and misappropriated investor assets beginning during the ICO phase of the offering.

To avoid the federal securities laws’ registration requirements, Middleton attempted to refashion VERI variously as “pre-paid fees” or “software,” and likened them to gift cards. To encourage purchases during the ICO phase of the offering, the defendants told potential investors that Veritaseum had products ready to go to market that would replace brokers, banks, and hedge funds. These statements were all false. There were no products “ready to ship” or that would net millions in revenue or replace financial institutions.

Moreover, after the ICO phase, Middleton placed a series of secret, manipulative trades in VERI on a digital asset platform, artificially increasing VERI’s price by approximately 315% during just one day of trading. He then touted these price increases and returns to VERI holders, stating, for example, that because VERI was “up 33.51x from its April 25th initial sales price, some prescient folk are quite happy.” Middleton also misappropriated for his own personal and undisclosed use at least $520,000 of the amounts raised in the Offering.

The SEC alleged that the Offering was illegal, as there was no registration statement filed or in effect for the offers and sales of VERI, and no exemption from registration applied.

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