Massachusetts Sues ICO Organizer for Alleged Securities Violations

Massachusetts' securities enforcement office is suing a resident and his company for selling unregistered securities in a token sale.

AccessTimeIconJan 19, 2018 at 2:00 p.m. UTC
Updated Sep 13, 2021 at 7:23 a.m. UTC
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The Massachusetts Securities Division is charging a resident of the state with violating securities and business laws through an initial coin offering (ICO)

The division, part of the Office of the Secretary of the Commonwealth, accuses Brookline, MA, resident Kirill Bensonoff and his company, Caviar, of selling unregistered securities after he launched an ICO to sell "caviar" tokens from his home.

While Caviar’s website stated it would only sell its tokens to non-U.S. residents, its controls were not stringent enough to actually prevent American residents from buying tokens. The filing claims that at least two U.S. residents were able to participate in the ICO.

The proceeds from the token sale would be used to "flip" properties, according to the Boston Herald. Caviar was to also invest in cryptocurrencies on a longer-term basis.

The filing continues that, contrary to the firm's claims that Caviar tokens were not securities, the way the company was set up makes the tokens a "textbook example of a conventional security," and therefore needed to be registered as such or classified as exempt from registration. Bensonoff had not registered or received an exemption for his token scheme.

According to the filing, Bensonoff had raised $3 million of a planned $24 million via the token sale.

Caviar is registered as an entity in the Cayman Islands, but Bensonoff has never visited the country and the firm has had no physical locations there, according to the filing, which continued on to say Bensonoff claimed to have registered in the islands because "we decided that that's a jurisdiction that we felt comfortable with."

Massachusetts' Secretary of the Commonwealth, William Galvin, said the filing is a warning for anyone else who would use an ICO to circumvent securities laws, according to the Herald.

In a statement to BizJournal, Bensonoff said he did not think Caviar violated Massachusetts securities laws, and that he had been talking to the Secretary's office.

He continued:

"We expect to continue that dialogue and believe that we can meet the Secretary's concerns regarding Massachusetts purchasers."

Gavel image via Shutterstock


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