SEC v. NAC Foundation, L.L.C.

NAC Foundation, L.L.C. (NAC) (defendant) was a blockchain-development company. Together with CEO Marcus Rowland Andrade (defendant), NAC sought to introduce a digital asset to be known as AML BitCoin. The project was described in a white paper as a digital asset that rested on a privately regulated public blockchain, designed to facilitate anti-money laundering. To raise capital for the project, NAC and Andrade promoted an initial coin offering (ICO), pursuant to which NAC and Andrade would sell digital assets named ABTC tokens, which served as a stand-in until the AML BitCoin blockchain was fully developed. In addition to the description of the stand-in ABTC tokens, the white paper emphasized that ABTC and AML BitCoins would be tradable on participating exchanges and that they might appreciate in value in the future. The white paper also claimed that the ICO was fully compliant with federal law, including federal securities laws. Specifically, the white paper claimed that ICO participation did not result in investment contracts. Ultimately, the ICO resulted in NAC and Andrade raising approximately $5.6 million, mostly attributable to retail purchases of ABTC tokens. The ABTC tokens became tradable on multiple online exchanges. NAC and Andrade, however, never took any steps to register either ABTC or AML BitCoin as a security with the Securities and Exchange Commission (SEC). The SEC subsequently filed an action in federal court against NAC and Andrade, claiming that the tokens were offered as an investment and that materially false statements had been made. NAC and Andrade moved to dismiss, arguing that ABTC tokens were not securities under federal law and, therefore, were beyond the SEC’s regulatory jurisdiction.