On January 25, 2018, the SEC filed a sealed civil Complaint in federal court in Dallas against AriseBank and its founders. The Complaint alleged that the defendants had committed securities fraud in raising more than $600 million in an initial coin offering ("ICO") of AriseCoin, starting in December 2017. The SEC immediately made a series of rapid legal moves designed to gain control of AriseBank and its assets.
Just one day after the filing of the new case, the Court had already appointed a receiver at the request of the SEC. The chosen receiver is a private attorney from the law firm Jones Day, and on January 26, with Court approval, he hired other lawyers at his firm to represent him. His motion states that they will cap their fees at $125,000 for the first 30 days.
On the same day, again with Court approval, the receiver hired Kroll Cyber Security as his forensic vendor. The motion states that Kroll's scope of work includes "[i]dentifying and imaging devices that might contain virtual wallets, keys, PINs, and passwords" and "[l]ocating cloud computing accounts, which might also contain virtual wallets or currencies." An important job, from the perspective of someone who bought AriseCoin and may be hoping for their money back.
All of this happened before the case was "unsealed" on January 29, making it available to the public for the first time.
This cryptocurrency-related emergency action by the SEC and receivership are the first of their kind. It is also interesting that in addition to cooperating with the FBI, U.S. Attorney's Office, FDIC, USPTO, and Texas Department of Banking, the SEC chose to chase the assets of AriseBank through the appointment of a private attorney, his law firm, and his chosen vendor. It remains to be seen how this playbook works out, and whether the quick, concerted strike is able to secure the currencies paid by people who bought AriseCoin.
Regardless, it is striking how quickly the SEC moved. AriseBank's promotion started in November 2017. Their public sale began December 26, 2017. One month later, the SEC was locked and loaded with a sealed federal Complaint, a private receiver, legal and forensic service providers, and – presumably – a plan in place to gain access to as much of the assets of AriseBank as possible.
They came for AriseBank quickly and in secret, and the public only found out about it three days later, when the record was unsealed. Watch out for further developments, as this case is bound to capture a great deal of attention and shed light on the SEC's enforcement regime in the ICO space.
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