The U.S. Financial Industry Regulatory Authority has taken its first disciplinary action involving cryptocurrencies. The authority charges a broker with fraudulent and unlawful distribution of unregistered crypto securities. The owner allegedly “attempted to lure public investment in his worthless public company” by issuing “the first minable coin backed by marketable securities.”
FINRA’s First Crypto Disciplinary Action
The U.S. Financial Industry Regulatory Authority (FINRA) has issued its first crypto-related disciplinary action. The organization announced on Tuesday, September 11, “that it filed a complaint against Timothy Tilton Ayre of Agawam, Massachusetts, charging him with securities fraud and the unlawful distribution of an unregistered cryptocurrency security called Hempcoin,” adding:
This case represents FINRA’s first disciplinary action involving cryptocurrencies.
FINRA is a not-for-profit organization authorized by Congress to protect investors in the US by ensuring that the broker-dealer industry operates fairly and honestly. Although the organization is not part of the government, it is overseen by the U.S. Securities and Exchange Commission (SEC). In addition, FINRA “has the authority to fine, suspend or bar brokers and firms from the industry,” its website describes.
According to Tuesday’s notice, “The issuance of a disciplinary complaint represents the initiation of a formal proceeding by FINRA in which findings as to the allegations in the complaint have not been made, and does not represent a decision as to any of the allegations contained in the complaint.” All parties named in the complaint can file a response and request a hearing before a FINRA disciplinary panel, the notice details, noting:
Possible remedies include a fine, censure, suspension or bar from the securities industry, disgorgement of gains associated with the violations and payment of restitution.
The Hempcoin Case
Ayre is listed as the president of Rocky Mountain Ayre Inc., a publicly traded company listed on the OTC Grey market under the RMTN trading symbol.
In its complaint, FINRA alleges that, from January 2013 through October 2016, Ayre made “fraudulent, positive statements about RMTN’s business finances,” elaborating:
Ayre attempted to lure public investment in his worthless public company, Rocky Mountain Ayre Inc. (RMTN), by issuing and selling Hempcoin – which he publicized as ‘the first minable coin backed by marketable securities’.
According to FINRA, Ayre bought the rights to Hempcoin in June 2015. He then repackaged the token as a security backed by RMTN common stock and marketed it as “the world’s first currency to represent equity ownership” in a publicly traded company.
Investors, promised that “each coin was equivalent to 0.10 shares of RMTN common stock,” proceeded to mine more than 81 million Hempcoin securities through late 2017, FINRA described, noting that the coins were traded on two crypto exchanges.
FINRA believes that “Ayre defrauded investors in RMTN by making materially false statements and omissions regarding the nature of RMTN’s business, failing to disclose his creation and unlawful distribution of Hempcoin, and making multiple false and misleading statements in RMTN’s financial statements,” adding:
FINRA charges Ayre with the unlawful distribution of an unregistered security because he never registered Hempcoin and no exemption to registration applied.
What do you think of FINRA’s first crypto disciplinary action? Let us know in the comments section below.
Images courtesy of Shutterstock and Rocky Mountain Ayre Inc.
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