The Securities and Exchange Commission issued a penalty of $30000 against the founder of a company that perpetrated a fraudulent initial coin offering (ICO) to fund oil exploration and drilling in California.
David T. Laurance’s LinkedIn profile states that he is the president and CEO of Tomahawk Exploration LLC which is registered as an oil drilling company with 8 years of experience in that company. In June 2017, Laurence created “Tomahawkcoins” with a plan to raise $5 million in an initial coin offering (ICO). It was advertised that this capital would be used to drill ten wells in California. Although the ICO failed to raise money, Tomahawk issued tokens through a “Bounty Program” in exchange for online promotional services.Tomahawk also claimed that ‘token owners would be able to convert the Tomahawkcoins into equity and potentially profit from the anticipated oil production and secondary trading of the tokens’ as per the official report by the SEC.
The SEC’s Evidence
According to the SEC’s order, Laurence and Tomahawk Exploration LLC attempted to raise money through the sale of blockchain-based digital tokens called “Tomahawkcoins.” The SEC’s order found that Laurence’s promotional materials used inflated projections of oil production that were contradicted by the company’s own internal analysis and misleadingly suggested that Tomahawk possessed leases for drilling sites when it did not.
The bench found that the promotion material described Laurence as having a “flawless background”, but his shady past came up later revealing he had a prior conviction dating back to 1993 in a mail fraud case involving a penny stock scheme. Laurence, who is 76, neither disclosed his criminal past nor did he inform investors of the risks involved in his oil business Tomahawk, which was intended to explore Kern County, California.
The SEC’s Verdict
‘The SEC’s order finds that Tomahawk and Laurance violated the registration and antifraud provisions of the federal securities laws. Without admitting or denying the SEC’s findings, Tomahawk and Laurance consented to a cease and desist order and Laurance consented to an officer and director bar, penny stock bar, and a $30,000 penalty’ according to the official press release.
Robert A. Cohen, Chief of the SEC’s Cyber Unit warned that “Investors should be alert to the risk of old-school frauds, like oil and gas schemes, masquerading as innovative blockchain-based ICOs”.
The SEC’s Office of Investor Education and Advocacy (OIEA) issued an Investor Alert to encourage investors to use the simple and free search tool on Investor.gov. to check the background of anyone selling or offering them an investment. SEC Action Lookup – Individuals (SALI) is another tool that helps investors identify individuals who have been convicted by the SEC. OIEA’s ICO Investor Bulletin also warned investors to watch out for potential warning signs of investment fraud including promises of “guaranteed” high investment returns.
Gary DeWaal, special counsel at Katten Muchin Rosenman who specializes in digital currencies said that “This is just another wolf in a different type of sheep’s clothing, but it’s still sheep’s clothing,”. He added that “This is just using a different medium for an old-fashioned fraud”.
Note of caution to Investors
Exit ICO scams have cost investors over $100 million according to a recent study published by digital asset newsletter Diar. The Chinese company Shenzhen Puyin Blockchain Group holds the highest position in such scams currently, which was able to raise $60 million from three different ICOs. The company raised funds for three ventures – ACChain, Puyin, and BioLifeChain – none of which materialized. Cryptokami and NVO raised $12 an $8 million before seemingly abandoning work on their projects. Cryptokami’s site is now defunct, and NVO hasn’t updated its Facebook page since March.
It seems that early stage speculation far distorts the true value of tokens offered. A report suggests that after analyzing the top ten ICOs whose tokens have been trading for at least six months, it was found that on average their price fell by 93 recent from the associated token’s all-time high. However, as numerous Twitter users have pointed out, these figures should be viewed with caution as the numbers overly distort the overall figure of growth.
The lack of robust regulation has resulted in the ICO sector being hit by a plague of exit scams. The current infrastructure makes it close to impossible to ensure the legitimacy of projects being listed, after all, there are no legal obligations in this arena to deliver a product once you have raised secured funding. It’s pretty much a digital wild west as far as the law is concerned. Projects that are just plowing forward, slowly using up the capital raised, but still have nothing to show for it are even more alarming.
As reported by Cryptoticker earlier on several occasions, we advise you to maintain high caution when dealing with ICO’s.
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