The U.S. Securities and Exchange Commission (SEC) has secured another victory in its ongoing crackdown on unregistered initial coin offerings (ICOs).
A federal judge in Massachusetts ruled in favor of the SEC in its case against the defunct blockchain hardware company Rivetz Corp and its CEO, Steven Sprague.
The SEC had filed the lawsuit in 2021, alleging that Rivetz sold $18 million worth of Ethereum-based Rivetz (RvT) tokens to over 7,200 investors during its 2017 ICO.
A significant portion of these investors were based in the U.S., prompting the SEC to argue that the tokens constituted unregistered securities under the Howey Test, a legal framework used to determine whether certain transactions qualify as investment contracts.
In a ruling issued on September 30, Judge Mark Mastroianni sided with the SEC, rejecting Sprague's defense that the RvT token was a software product rather than a security.
Judge Mastroianni stated that Rivetz and Sprague clearly indicated that the value of RvT tokens would be linked to Rivetz’s goal of developing a security ecosystem for mobile devices, thereby meeting the criteria of the Howey Test.
“The tokens were functional as ERC-20 tokens but had no additional uses or inherent value because Rivetz did not yet have a functional security ecosystem,” wrote Judge Mastroianni.
He further noted that the value of the token was dependent on the company's future efforts, establishing investor expectations of profit.
The SEC has been instructed to coordinate with Sprague and file a proposal for injunctive and monetary relief by October 22.
This ruling follows a recent partial victory for the SEC in a similar case against Opporty International, which involved unregistered securities from a 2017 ICO.