Barely a week after the United States Securities and Exchanges Commission (SEC) obtained a court order to freeze assets belonging to Veritaseum Founder, Reggie Middleton, and his company, the startup has issued an official legal response.
The SEC had alleged in their lawsuit that the Initial Coin Offering (ICO) through which Veritaseum raised $14.8 million between 2017 and 2018 constituted a securities sale and was fraudulent since Middleton and his team had manipulated prices to their favor.
The SEC also claimed that Middleton had pocketed $520,000 of the total raised sum for personal use and also took another $600,000 to fund another alleged scam.
However, in a 423-page legal response released today for public reading by Veritaseum, the project refuted the SEC allegation that the Veritaseum tokens which they sold to the public were 'security.'
Instead, Veritaseum highlighted the tokens as utility tokens which offered users access to features on their platform which they had continued developing after the ICO.
“The tokens are not investments and are not securities. They do not represent an ownership interest in Veritaseum or its assets; do not give holders any right to share in the company’s profits; do not confer voting rights; do not pay dividends or interest," a section of the response read.
Next, Veritaseum tried to rule out one of the primary reasons for which the SEC obtained a court freeze order, that is, that Founder Reggie Middleton was moving company funds to personal accounts when he realized he was now under the SEC's radar.
Regarding that allegation, the Veritaseum response sought to clarify that the fund movement was part of "routine funding of Veritaseum’s ongoing lawful business operations and was consistent with the company’s prior funding practices.”
Lastly, the response accused the SEC of failing to fulfill its prime role of protecting investors, when the agency decided to freeze assets belonging to Veritaseum. A section in this regard confirmed that "the temporary freeze, in this case, has already caused significant harm to the holders of Veritaseum’s utility tokens, the very people the SEC is purportedly seeking to protect."
Time will now tell whether the startup's reply will provide a stepping stone for the court to revoke the SEC's right to freeze the said assets, and prompt the agency to provide concrete evidence to back their allegations against Veritaseum.
Meanwhile, Veritaseum's refusal to settle charges with the SEC makes it the second high profile ICO in recent times to challenge the agency's allegation that a project failed to register a crypto token offering in line with U.S securities law.
The other startup, KIK, a Canada-based messaging platform recently revealed it would protest a similar decision in court with the hope of getting the regulator to provide more transparent rules for crypto companies.