The American Financial Industry Regulatory Authority (FINRA) has issued fraud charges related to and initial coin offering (ICO) for the first time. The complaint was filed against a Massachusetts resident Timothy Tilton Ayre, charging him with securities fraud and the unlawful distribution of an unregistered cryptocurrency security.
The token in question is HempCoin (THC), a token developed to serve as a payment solution for businesses in the agriculture, hemp, legal cannabis, and tobacco industries. The coin is trading at $0.026 at press time and is listed on the Bittrex exchange.
FINRA has accused Mr. Ayre of defrauding investors from January 2013 to October 2016 through selling THC tokens, which were falsely claimed to be backed by investments in the public company. Ayre tried to lure investors to put their money into his company Rocky Mountain Ayre, Inc. (RMTN) by selling HempCoin, which was marketed as “the first minable coin backed by marketable securities.“ RMTN was trading over the counter on the Pink Market of OTC Markets Group.
In addition, FINRA claims that in June 2015 Mr. Ayre purchased the rights to HempCoin in an attempt to transform it into a security, backed by RMTN stock. In a yet another “world’s first” marketing trick, THC tokens were promoted as the world’s first digital asset to represent equity ownership in a publicly traded company. Each THC coin was worth 0.1 of RMTN’s common stock and by the end of 2017 over $81 million worth of tokens were mined and traded on 2 exchanges. Thus, FINRA charges Ayre with the unlawful distribution of an unregistered security as he never registered the security, nor applied for an exemption.
The allegations do not stop there, however. To top up, Mr. Ayre is accused of making false statements, omissions and misleading claims to RMTN investors who were not informed about the creation and unlawful distribution of HempCoin. FINRA did not provide any information on whether Mr. Ayre is in custody and the details of how it plans to retrieve funds obtained from the scam.
Nonetheless, FINRA stated that charges do not represent a decision and that Mr. Ayre can still respond to the charges. The official statement claims that “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.“
Even though this is the first instance of FINRA taking disciplinary action against unlawful ICOs, it most likely won‘t be the last. The initial coin offerings have caught an eye of the regulators, as many of them fail to deliver on their promises for the investors. FINRA warned last year that most of the tokens are so-called “pump-and-dump” scams.
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