SEC Wins Lawsuit Against Defunct Crypto Firm Over $18M ICO

The SEC won a judgment in its lawsuit against Rivetz Corp. and CEO Steven Sprague, marking another victory against a cryptocurrency company over an ICO.

When Rivetz and its CEO, Steven Sprague, launched an Ethereum-based token in 2017, a US federal judge determined that they had marketed unregistered securities.

Judge Mark Mastroianni of the Massachusetts federal court agreed with the US Securities and Exchange Commissionon September 30 when he ordered that Sprague marketed unregistered securities through Rivetz by providing US citizens with the Ethereum-based Rivetz, or RvT, token.

The regulator filed a lawsuit against Sprague and the now-defunct blockchain hardware company in September 2021, claiming that they had sold over 7,200 investors—of them, a third were in the US—$18 million worth of Rivetz coins in 2017.

While neither the SEC nor Sprague challenged the case’s essential facts, Sprague, speaking on his behalf, said that the token met the securities-defining Howey test criteria as a software product rather than an investment contract, contrary to what the SEC had stated.

However, Judge Mastroianni noted that “Reventz and Sprague made statements to potential purchasers that tied the value of RvT tokens to Rivetz’s goal of creating a security ecosystem for mobile devices, starting from the first announcement of the ICO and continuing through its completion.”

The coins, he continued, “had no inherent value or additional uses because Rivetz did not yet have a functional security ecosystem,” but they “were functional as ERC-20 tokens.”

According to the judge’s ruling, the RvT token’s value “was directly dependent on Rivetz’s entrepreneurial efforts,” satisfying a requirement of the Howey test that stipulates token purchasers must have anticipated rewards from his endeavors.

Judge Mastroianni said the tokens met further requirements to be classified as securities since they were advertised “as a functional part of the Rivetz security ecosystem” and their value “depended on future demand and usability.”

By October 22, the SEC was instructed to meet with Sprague and submit a monetary and injunctive relief plan.

Sprague did not answer a request for comment right away.

It follows the SEC’s partial victory on September 24 in a case against the blockchain company Opporty International. Through its $600,000 initial coin offering (ICO) in 2017 and 2018, the company and its founder, Sergii Grybniak, were found to have marketed unregistered securities by a federal court judge in New York.