SEC Secures Legal Victory in $18M ICO Case Against Defunct Crypto Firm

SEC Secures Legal Victory in $18M ICO Case Against Defunct Crypto Firm Rivetz Corp

The U.S. Securities and Exchange Commission (SEC) has won a significant legal battle against Rivetz Corp and its CEO, Steven Sprague, over an initial coin offering (ICO). In a ruling on September 30, Massachusetts federal judge Mark Mastroianni sided with the SEC, determining that Sprague and Rivetz unlawfully sold unregistered securities through their Ethereum-based Rivetz (RvT) token to U.S. investors.

The lawsuit, filed in September 2021, alleged that Rivetz raised $18 million by selling RvT tokens to over 7,200 investors, with a third of those buyers located in the U.S. Sprague, representing himself, argued that the tokens were merely a software product, not an investment contract under the SEC’s Howey test. However, Judge Mastroianni ruled that Rivetz and Sprague had promoted the tokens as integral to creating a security ecosystem for mobile devices, linking the token’s value to the company’s success.

This case highlights the SEC’s ongoing efforts to crack down on unregistered crypto securities offerings, further reinforcing its stance on regulating ICOs.

Judge Mastroianni noted that while the Rivetz (RvT) tokens functioned as ERC-20 tokens, they “had no additional uses or inherent value” due to the absence of a functional security ecosystem.

The judge further ruled that the RvT token’s value was “directly dependent on Rivetz’s entrepreneurial efforts,” meeting a key requirement of the Howey test, which determines that buyers expected profits from the company’s actions.

Judge Mastroianni emphasized that the Rivetz tokens were marketed as “a functional part of the Rivetz security ecosystem,” and their value hinged on “future demand and usability,” fulfilling further criteria to classify them as securities.

The SEC was directed to work with Sprague and submit a proposal for injunctive and monetary relief by October 22. Sprague has yet to comment on the ruling.

This decision follows the SEC’s partial victory on September 24 against Opporty International, where a New York federal judge ruled that the company and its founder, Sergii Grybniak, sold $600,000 in unregistered securities through its ICO in 2017 and 2018.