A firm behind an Initial Coin Offering (ICO) in the US is celebrating after it defeated a major regulator in a protracted court battle.
Blockvest had originally been told by the Securities and Exchange Commission that it would not be able to proceed with its plans to offer its “BLV” tokens on the grounds that it was not above board.
The SEC claimed that the tokens were what it described as “unregistered securities”, and it even went as far as issuing a Temporary Restraining Order against the company.
This took place on 11 October this year, and it also included an asset freeze.
The SEC claimed that Blockvest had gone to great lengths to make itself look legitimate and supported by the Commission, including the creation of a fake regulation agency which even had a supposed government logo.
It also claimed that Blockvest took the bizarre step of designating its own office as the same location as the SEC’s.
However, Blockvest, which was founded by Reginald Buddy Ringgold III, disagreed.
In a sharply-worded defence, it claimed that it was fully licensed and that it regulated appropriately. It also said that it was the first such exchange and index fund in the country of this kind.
Now, a US federal court has ruled in favour of the firm – leading to some raised eyebrows within the crypto community.
The United States District Court for the Southern District of California considered a claim from the SEC that the BLV tokens offered by Blockvest should be seen as securities under the law.
This claim was based in part on the so-called “Howey test”, which is a three-part system designed to work out what is a security and what isn’t.
Ultimately, the court disagreed that the tokens were securities, meaning that the SEC’s desired preliminary injunction will now not occur.
In a statement, the court said the SEC as plaintiff had failed to make the demonstrations necessary to prove its case.
“The court concludes that [the] plaintiff has not demonstrated a prima facie showing that there has been a previous violation of the federal securities laws … the court denies plaintiff’s motion for preliminary injunction”, it said.
The ruling means that a trend has now been established – and it could suggest that other firms in a similar situation may fancy their chances at doing the same thing, which could have serious implications for the fight against crypto fraud.
It stands in direct contradiction even to what Jay Clayton, the SEC’s chair, said recently.
“If you finance a venture with a token offering, you should start with the assumption that it is a security”, he said.
However, some market analysts took a nuanced view about the potential impact of the ruling.
“As my colleagues in twitter law have stated, SEC pretty much got what it wanted with regard to Blockvest”, said Marco Santori, a blockchain lawyer.
“No bloody noses here. The precedent, though, is lasting, and definitely raises the bar for any plaintiff – public or private – seeking to sue ICO issuers. It’s going to be more complex, I think, than any of us realized. And a lot gets lost in the world of ICOs, like remembering.”