Court recommends terminating sanctions in SEC action against Blockvest
The egregious misconduct and willful deception concerning key issues in this litigation justifies the imposition of terminating sanctions requested by the SEC, the Court says.
The Honorable Michael S. Berg has sided with the Securities and Exchange Commission (SEC) regarding its motion for terminating sanctions in its action against Blockvest, LLC and Reginald Buddy Ringgold, III a/k/a Rasool Abdul Rahim El.
In a report signed by the Honorable Michael S. Berg on April 20, 2020, the Court recommends that the SEC’s motion for terminating sanctions be granted.
Let’s recall that, back in October 2018, the SEC filed a complaint against Blockvest and Ringgold. The SEC states that Blockvest and Ringgold, Blockvest’s founder and principal, offer and sell unregistered securities in the form of digital assets called “BLVs,” and seeks to stop investment fraud involving an initial coin offering (ICO) by the defendants. The SEC contends that the defendants falsely claim that their ICO has been “registered” and “approved” by the SEC and other regulators. The SEC further alleges that the defendants created a fictitious regulatory agency, the Blockchain Exchange Commission (“BEC”), in order to create legitimacy and an impression that their investment is safe.
The SEC claims that the defendants do not have the required regulatory approvals and the established business relationships they claim to have, because the BLV offering is not “U.S. SEC approved,” nor is it approved by any other U.S. financial regulator, the BEC is not affiliated with the SEC, and Blockvest is not affiliated with the name-brand companies whose logos appear in its marketing materials. The SEC alleges that investors’ assets therefore lack the safety and protections that Defendants are falsely portraying in their scheme to raise money through Blockvest’s planned ICO and ongoing pre-sales.
The SEC asserts five causes of action: (1) fraud in connection with the purchase or sale of securities, in violation of Section 10(b) of the Securities Exchange Act of 1934 (“Exchange Act”) and Rule 10b-5(b); (2) fraud in connection with the purchase or sale of securities, in violation of Section 10(b) of the Exchange Act and Rules 10b-5(a) and 10b-5(c); (3) fraud in the offer or sale of securities, in violation of Section 17(a)(2) of the Securities Act of 1933 (“Securities Act”); (4) fraud in the offer or sale of securities, in violation of Sections 17(a)(1) and 17(a)(3) of the Securities Act; and (5) unregistered offer and sale of securities, in violation of Sections 5(a) and 5(c) of the Securities Act.
On January 10, 2020, the SEC filed the instant ex parte motion for terminating sanctions. On January 24, 2020, the SEC filed a motion for summary judgement, which is currently pending before the District Judge at the US District Court for the Southern District of California.
District courts have inherent power to impose sanctions for “conduct which abuses the judicial process.” They have inherent power to impose sanctions, including default or dismissal, when a party has “willfully deceived the court and engaged in conduct utterly inconsistent with the orderly administration of justice.”
In deciding whether to impose terminating sanctions, courts must consider several factors, such as the public’s interest in expeditious resolution of litigation and the risk of prejudice to the party seeking sanctions.
The SEC moves for terminating sanctions against the defendants pursuant to the Court’s inherent authority, arguing that the defendants willfully and in bad faith deceived the Court by filing forged and false declarations in support of their opposition to the SEC’s motion for a preliminary injunction. The SEC asserts that subsequent discovery revealed that the filed declarations “obscured critical details” that the declarants were unaffiliated individuals who were provided Blockvest’s fraudulent promotional materials by the defendants and their commissioned sales agents before their investments, and that at least four of the declarations were knowingly deceptive or forged.
Specifically, the SEC contends that the declaration of an alleged Rosegold investor, Christopher Russell, was filed with the Court with a forged signature of the declarant and contained numerous false statements. The SEC further states that Ringgold asked at least two supposed testers, Quintin Dorsey and Jacqueline Wartanian, to sign false declarations, concealing that they had trusted Ringgold with their money because they were his former Online Trading Academy students, and expected a return from real Blockvest tokens that they purchased after reviewing Blockvest’s promotional materials Ringgold provided.
The Court finds that the defendants’ submission and reliance on the false and fraudulent declarations at issue was willful and constitutes bad faith. The filing of the forged declaration, the breadth of the falsehoods in the declarations, the defendants’ failure to correct or withdraw the declarations, and Ringgold’s attempt to conceal the wrongdoing, demonstrate that th defendants intentionally presented false evidence to the District Court, the Judge says.
As a result, the Court recommends finding that Blockvest and Ringgold acted willfully and in bad faith.
Also, the Judge notes that this action has been pending since October 3, 2018, and the SEC and the Court dedicated substantial public resources to this case. Defendants’ misconduct caused unnecessary delay and expense for the SEC, and the public it seeks to protect. The Court thus finds that this factor weighs in favor of imposing terminating sanctions.
The false evidence produced by the defendants precluded the SEC from timely ascertaining evidence central to its claims, and forced the regulator to engage in extensive, costly, and lengthy discovery to uncover key facts and the extent of the defendants’ deceit. Defendants’ misconduct therefore “threatens to interfere with the rightful decision of the case,” and may force the plaintiff “to rely on incomplete and spotty evidence at trial.”
The Court is mindful that terminating sanctions are a hash remedy, however, “Defendants’ egregious misconduct and willful deception concerning key issues in this litigation justifies the imposition of terminating sanctions requested by Plaintiff”, the Judge concluded.