Setting a precedent for initial coin offerings (ICOs), a Southern District of California Judge, Gonzalo Curiel, made a declaration that the US Securities and Exchange Commission (SEC) ruling concerning Blockvest ICO being a security had not been fully justified.
The court took to a case back in 1946 to determine if Blockvest’s token should be categorized as a security. The “Howey Test” was created by the Supreme Court to conclude if certain transactions qualified as “investment contracts.”
Under the Howey Test, a transaction is an investment contract if:
- It is an investment of money
- There is an expectation of profits from the investment
- The investment of money is in a common enterprise
- Any profit comes from the efforts of a promoter or third party
Judge Curiel deemed that the SEC were not able to qualify Blockvest’s token as a security under these circumstances.
The SEC made the accusation that the Blockvest token platform was made with the explicit intent to attract investors in order to derive gain. Blockvest countered by saying that the platform was for testing purposes only, and did not wish to go forward with an ICO.
The judge favored the defendants declaring:
“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.).”
This did not however end their troubles. According to the SEC, Blockvest and Ringgold had falsified the claim that their ICO has been“registered” and “approved” by the regulating body and without warrant used the SEC’s seal on the firms website. Blockvest had also falsely claimed their ICO has been approved or endorsed by the Commodity Futures Trading Commission (CFTC) and the National Futures Association (NFA) as well as using their logos and seals.