Ringgold II: Court Reverses Course On Preliminary Injunction Of Digital Token

As detailed in a prior post on this blog, the United States District Court for the Southern District of California previously denied the U.S. Securities and Exchange Commission's (SEC) request for a preliminary injunction against Blockvest, LLC and its founder and chairman Reginald Buddy Ringgold, III (Ringgold). Recently, upon reconsideration, the court changed course, finding that the SEC presented enough facts for the court to preliminarily enjoin Blockvest and Ringgold from further violating Section 17(a) of the Securities Act.1

In its prior order, the court held that the SEC failed to establish the two elements needed to preliminarily enjoin Blockvest from committing future statutory violations: (1) a prima facie case of previous securities law violations; and (2) a reasonable likelihood that the wrong would be repeated. On reconsideration, the SEC successfully challenged the court's holding on both of these elements, and persuaded the court to issue a preliminary injunction.

On Reconsideration, the SEC Established a Prima Facie Case that Blockvest Violated Section 17(a) of the Securities Act

The SEC asserted two reasons why the court should reconsider its earlier ruling that the SEC failed to establish a prima facie case that Blockvest violated securities laws: (1) the court improperly required the SEC to prove the subjective beliefs of alleged investors who purchased BLV tokens or invested in Ringgold's business; and (2) the court erred in not considering Blockvest's promotional materials as an "offer" of securities in and of themselves.

A subjective test or disputed facts

In opposition to the court's original order, Ringgold argued that he did not expressly offer or sell securities; instead, he argued, he only sold test tokens or solicited investments in Rosegold, a holding company he owned. According to Ringgold, the thirty two (32) "testers" understood that they were buying BLV tokens that "were only designed for testing the platform and the testers would not and could not keep or remove BLV tokens from the Blockvest Exchange." The Rosegold investors, Ringgold argued, were mainly friends and family that "did not care what they were investing in because they trusted [the defendant] based on their long-time familial and friend relationships." Therefore, he argued, and the court agreed, the SEC could not make out a prima facie case for securities violations based on sales of BLV to these individuals.

On reconsideration the SEC argued...

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