In an important ruling, a South California district court has ruled that the SEC has no power to classify the Blockvest ICO token (BLV) as a security. Judge Gonzalo Curiel ruled that the SEC case did not satisfy the Howey Test, which is the legally established methodology to determine whether or not an asset constitutes a security. According to the judge, the SEC was also unable to prove what promotional materials the investors had responded to. Because there were so many disputed issues of fact in the case, the standard for the Howey Test was not met, and thus the injunction could not be granted by the court.
The details of the Blockvest case
The Blockvest ICO is not atypical of most others. It concerned only 32 people whose total investment was under USD 100,000. Moreover, many of these were close friends of the defendant. The case defense also successfully argued that the tokens were bought for the purpose of testing the network and the judge saw no reason for the SEC injunction. Further, the defendants had already agreed not to proceed with the ICO and the SEC did not prove any wrongdoing on behalf of the defendants.
“Based on the above, the Court DENIES Plaintiff’s motion for preliminary injunction. The Court also DENIES Defendants’ ex parte motion for evidentiary hearing and leave of court to file supplemental declarations. (Dkt. No. 30.) The Court also STRIKES Plaintiff’s Supplemental Declaration of David Brown and Defendants’ Opposition and Response. (Dkt. Nos. 39, 40.)”
BLV is an ERC-20 token, and the platform was to operate as an assets exchange and cryptocurrency index fund, automatically tracking the top 30 cryptocurrencies.
Blockvest case not over
The fate of Blockvest is still to be decided and the SEC has many other avenues to instigate charges against the project. Blockvest falsely misrepresented regulation by a “Blockchain Exchange Commission,” which does exist, just not in any official capacity. It also indicated to investors that it was regulated by the SEC, something that the regulatory authority is not going to take lightly. The case will be taken further, though Blockvest has been successful in battling the injunction and their assets remain unfrozen. According to the Blockvest legal representative –
“Relieved of the constraints of the TRO, our clients are now free to defend themselves through trial and look forward to being vindicated.”
This does not imply that US judges are resisting SEC efforts to crack down on ICOs. While there are many legal issues surrounding a complex area, the SEC does have jurisdiction in the USA over ICOs. This was an isolated case with a particularly effective defense put forward. It was also quite small in scope. Many ICO projects have been heavily prosecuted for failing to register as security token offerings, which is the norm in the sector. In different regions, judges are reprimanding regulatory authorities for extra-judicial actions in the DLT industry, but cases are all evaluated on individual merits.
Digital Nomad with an interest in Zen and Blockchain technology.
Law graduate with 3 years experience as a consultant in the capital markets industry and 4 years experience freelancing on UpWork as a Creative Writer.