FINRA launches its first disciplinary action involving cryptocurrencies

Maria Nikolova

FINRA’s complaint charges Timothy Tilton Ayre with securities fraud and the unlawful distribution of an unregistered cryptocurrency security called HempCoin.

More US authorities are joining the battle against cryptocurrency-related fraud. Earlier today, the Financial Industry Regulatory Authority (FINRA) announced that it had filed a complaint against Timothy Tilton Ayre of Agawam, Massachusetts, charging him with securities fraud and the unlawful distribution of an unregistered cryptocurrency security called HempCoin. This case marks FINRA’s first disciplinary action involving cryptocurrencies.

According to FINRA’s allegations, from January 2013 through October 2016, Ayre attempted to lure public investment in his worthless public company, Rocky Mountain Ayre, Inc. (RMTN) by issuing and selling HempCoin – which he publicized as “the first minable coin backed by marketable securities” – and by making fraudulent, positive statements about RMTN’s business and finances. RMTN was quoted on the Pink Market of OTC Markets Group and traded over the counter.

In its complaint, FINRA also alleges that in June 2015, Ayre bought the rights to HempCoin and repackaged it as a security backed by RMTN common stock. Ayre marketed HempCoin as “the world’s first currency to represent equity ownership” in a publicly traded company and promised investors that each coin was equivalent to 0.10 shares of RMTN common stock. Investors mined more than 81 million HempCoin securities through late 2017 and bought and sold the security on two cryptocurrency exchanges. FINRA charges Ayre with the unlawful distribution of an unregistered security because he never registered HempCoin and no exemption to registration applied.

Furthermore, FINRA alleges that, from January 2013 through October 2016, Ayre defrauded investors in RMTN by making materially false statements and omissions regarding the nature of RMTN’s business, failing to disclose his creation and unlawful distribution of HempCoin, and making multiple false and misleading statements in RMTN’s financial statements.

The issuance of a disciplinary complaint marks the launch of a formal proceeding by FINRA in which findings as to the allegations in the complaint have not been made, and does not represent a decision as to any of the allegations contained in the complaint. Under FINRA rules, a firm or individual named in a complaint can file a response and request a hearing before a FINRA disciplinary panel. Possible remedies include a fine, censure, suspension or bar from the securities industry, disgorgement of gains associated with the violations and payment of restitution.

The action taken by FINRA comes amid a clampdown by US authorities against cryptocurrency fraud. The Securities and Exchange Commission (SEC) and the Commodity Futures Trading Commission (CFTC) have already taken cryptoscammers to Court. Perhaps the best known case launched by the SEC is that against PlexCorps and the individuals behind it.

If we have to highlight a cryptocurrency-related lawsuit launched by the CFTC then this has to be the one launched against Patrick McDonnell and CabbageTech. In this case, the CFTC had to prove that it had the powers to prosecute cryptocurrency fraud. In August this year, the regulator won this landmark case and secured a permanent injunction against the fraudsters. The defendants were also ordered to pay restitution in the amount of $290,429, as well as a civil monetary penalty of $871,287.

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