The U.S. Securities and Exchange Commission (SEC) secured another significant legal victory in the crypto space, winning a judgment against Rivetz Corp and its CEO, Steven Sprague, for conducting an unregistered initial coin offering (ICO).
Rivetz’s $18 Million ICO Deemed Unregistered Security
On September 30, Massachusetts federal judge Mark Mastroianni ruled in favor of the SEC, agreeing that Rivetz and Sprague violated securities laws by selling unregistered securities. The Ethereum-based Rivetz (RvT) token, sold during a 2017 ICO, was offered to over 7,200 investors, including approximately one-third from the U.S., raising $18 million.
The SEC filed the lawsuit against the now-defunct blockchain hardware company and Sprague in September 2021, arguing that the RvT tokens met the criteria of a security under the Howey test, which defines investment contracts. Despite Sprague’s defense that the tokens were a software product rather than securities, Judge Mastroianni found the SEC’s claims valid.
Howey Test Applied to Rivetz Tokens
Sprague, representing himself in the case, maintained that the RvT tokens were not investment contracts, but the court found otherwise. Judge Mastroianni pointed to Rivetz’s statements during the ICO, which linked the token’s value to the company’s ambition to develop a security ecosystem for mobile devices. This connection, the judge ruled, indicated that investors expected profits based on Rivetz’s entrepreneurial efforts.
The judge emphasized that while the RvT tokens functioned as ERC-20 tokens, they held no inherent value at the time because Rivetz’s promised security ecosystem was not yet functional. Therefore, the tokens were categorized as securities, as their value hinged on the company’s future success, meeting multiple criteria under the Howey test.
SEC to Pursue Further Remedies
The court has directed the SEC to work with Sprague to submit a proposal for injunctive and monetary relief by October 22. This could lead to additional penalties or restrictions on future activities for both Sprague and Rivetz.
Sprague has not yet commented on the ruling.
SEC’s Ongoing Success Against ICOs
The Rivetz case adds to the SEC’s growing list of wins against companies involved in unregistered ICOs. Just days earlier, on September 24, the SEC partially won a case against blockchain firm Opporty International and its founder, Sergii Grybniak, over a $600,000 ICO conducted between 2017 and 2018.
These cases highlight the SEC’s continued effort to regulate the crypto space, specifically targeting firms that raise funds through ICOs without proper registration.
