Just doing it’s job
The United States Securities and Exchange Commission (SEC) has penalized the founder of Tomahawk Exploration LLC for conducting a fraudulent ICO. The ICO securities probe team has obtained permanent ‘Officer-and-Director’ and ‘Penny-Stock’ bars against David T. Laurance. The SEC has also imposed a US $ 30,000 penalty.
Initial Coin Offerings (ICOs) became very popular in 2017. Blockchain and crypto start-ups raised billions of dollars through this route. However, most countries are still working on regulatory frameworks for them, meaning that most ICOs operate in a legal gray-area that can have devastating consequences.
Retail investors aren’t familiar with the high risks of securities investment. In most countries, including the USA, stringent regulations cover securities investment to protect small retail investors. For example, the SEC allows only accredited investors to invest in securities. Retail investors can transact only in secondary markets.
Since ICOs operated without regulations, retail investors could participate. This democratized investment, but at a cost. Several scam ICOs sold their fraudulent offerings to retail investors and made off with large sums. Regulators are waking up to these malpractices, and while they may be taking too heavy a hand, justice for fraudulent actors is always welcome.
Long arm of the securities law
Securities regulations require issuers to register their offerings and meet disclosure requirements. However, scam ICOs only created their website and whitepaper, then aggressively marketed their project and sold off their tokens. They didn’t follow the disclosure requirements, thus exposing investors to high risks.
Tomahawk Exploration LLC is one such scam ICO. The company committed many acts of fraud while issuing their tokens. They misrepresented and concealed information, and promised impossible returns on investment (RoI).
A scam is born
Tomahawk Exploration LLC wanted to raise US $5 million to fund oil and gas exploration in California. They created a crypto token called ‘Tomahawkcoin’ and aggressively marketed it. The company claimed to have leases for oil drilling sites when in fact they had none. Tomahawk also inflated oil production projections that didn’t match their internal analysis.
Laurance founded Tomahawk in July 2017. The company claimed that they would be a publicly traded company within 18 months. They explained that investors could then convert their tokens into equities and sell on secondary markets. Tomahawk also promised high returns citing inflated oil production projections.
As if these claims weren’t outrageous enough, Tomahawk also concealed that Laurance had been charged with two counts of securities fraud in 1993, five other counts of fraud before that, and a prison term for the trifecta. After his release, Laurance entered into the oil and gas business. However, the State of Nevada permanently revoked his business entity status. Tomahawk concealed all of this and projected Laurance as a credible individual.
Laurance and Tomahawk neither admit the SEC charges nor deny them. They have consented to the cease and desist order. Laurance has also consented to the officer and director bar, penny stock bar, and the penalty. The company can’t raise any more funds from the ICO. However, they have distributed some of their tokens through a bounty program in return for promotional services.
SEC ICO securities investigations have subpoenaed other companies, including Long Blockchain Company, previously known as Long Island Iced Tea. As an entity that is supposed to have the public good in mind, the SEC is trying to educate investors about identifying potential scam ICOs using their Investor.gov portal. Hopefully a combination of their efforts and some common sense, limited regulations will prevent future instances of naked fraudulence.