Securities and Exchange Commission v. Blockvest, LLC

The Securities and Exchange Commission (SEC) (plaintiff) sued Blockvest, LLC and its founder, Reginald Ringgold III (defendants), for offering to sell unregistered securities in violation of the federal securities laws. The SEC requested a preliminary injunction, which the district court denied. The court concluded that the SEC did not make a prima facie showing that Blockvest and Ringgold had committed securities-law violations with respect to 32 claimed testers and 17 others because the SEC did not show that the relevant instruments (digital assets known as BLVs) were securities under the United States Supreme Court’s test enunciated in Securities and Exchange Commission v. W.J. Howey Co. The SEC moved for reconsideration, arguing that (1) the district court erroneously utilized a subjective standard in applying Howey and (2) the BLV promotional material that Blockvest and Ringgold disseminated on Blockvest’s website, in a white paper, and on social media were improper offers to sell securities in contravention of § 17a of the Securities Act of 1933. Specifically, the SEC noted that Blockvest’s website had a “buy now” button for BLVs and that the website and the white paper encouraged readers to exchange digital currencies for BLVs. The SEC further cited the fact that the white paper stated that BLV owners would be entitled to pro rata shares of a portion of Blockvest’s profits. Blockvest and Ringgold responded that the district court correctly applied Howey in its original decision and that Blockvest’s promotional materials were not offers to sell securities because they did not manifest Blockvest’s intent to be bound. The SEC countered that Blockvest and Ringgold relied on California contract law regarding offers but that the federal securities laws utilized a broader definition that did not require an intent to be bound.