The U.S. Securities and Exchange Commission (SEC) has secured another victory in its ongoing crackdown on initial coin offerings (ICOs).
On September 30, a Massachusetts federal court ruled in favor of the SEC against Rivetz Corp and its CEO, Steven Sprague, for selling unregistered securities through the Rivetz (RvT) token offering.
Judge Mark Mastroianni ruled that Sprague and Rivetz sold $18 million worth of unregistered Ethereum-based RvT tokens to over 7,200 investors in 2017. A third of these tokens were located in the U.S. Although neither party disputed the facts, Sprague—who represented himself—argued that the token was a software product and not a security under the Howey test.
The judge disagreed, stating that the RvT token’s value was closely tied to Rivetz’s goal of creating a security ecosystem for mobile devices, which makes it an investment contract under the Howey test. Judge Mastroianni also noted that while RvT tokens were functional as ERC-20 tokens, they had no inherent value because Rivetz had not yet developed the promised security ecosystem.
The court’s ruling meets key criteria of the Howey test, establishing that investors expected profits from Rivetz’s entrepreneurial efforts. The SEC has been instructed to work with Sprague and submit a proposal for injunctive and monetary relief by October 22.
This ruling follows the SEC’s partial victory in another ICO-related case against blockchain firm Opporty International on September 24.
The SEC accused Opporty and Grybniak of conducting a fraudulent ICO, raising $600,000 between 2017 and 2018 from nearly 200 investors. The court agreed that Opporty’s OPP tokens were investment contracts under the Howey test, meaning they needed to be registered with the SEC under federal securities laws.
Grybniak argued that the ICO pre-sale was exempt from registration under Regulation D and Regulation S, which apply to private offerings and international sales, respectively. However, the judge found that Opporty did not meet the Regulation S exemption requirements because they conducted “directed selling efforts” in the U.S.
