The United States Securities and Exchange Commission (SEC) has reportedly achieved a partial victory in its case against blockchain firm Opporty International and its owner, Sergii Grybniak.
The case, centered on the alleged fraudulent initial coin offering (ICO) conducted by the firm, has raised important questions about the legality of digital asset sales.
Proven Claims by the SEC
On September 24, U.S. District Judge Eric Komitee issued a memorandum stating that the SEC had successfully proven key aspects of its claim against Opporty and Grybniak. The SEC initially filed legal action against the company in January 2021, accusing it of offering unregistered securities in the form of “OPP” tokens during its ICO.
According to the court’s findings, Opporty’s token sale, which took place between September 2017 and October 2018, raised $600,000 from nearly 200 investors in the U.S. and overseas. The SEC argued that these tokens qualified as investment contracts under the Howey test, making them subject to federal securities regulations.
Notably, Howey test is a regulatory framework for determining whether certain transactions qualify as investment contracts. As such, Opporty and Grybniak were required to register the sale with the SEC—something they failed to do.
In his ruling, Judge Komitee upheld the SEC’s position, confirming that the tokens sold by Opporty were indeed securities under U.S. law and should have been registered accordingly. The judge also acknowledged the SEC’s claim that the ICO pre-sale violated Section 5 of the Securities Act of 1933, which governs the registration and distribution of securities.
Grybniak’s Argument
However, Grybniak mounted a defense, arguing that the token sale was exempt from registration under Regulation D/S, which provides exemptions for private offerings or those involving accredited investors. He further claimed that the ICO complied with exemptions because many sales occurred outside the U.S.
While Judge Komitee recognized Grybniak’s argument as reasonable, particularly noting the SEC’s vague and inconsistent guidance on how the Howey test applies to cryptocurrency offerings, he ultimately agreed with the SEC.
The judge concluded that Opporty and Grybniak failed to meet the requirements for the Regulation S exemption because they had “undisputedly engaged in ‘directed selling efforts’ in the U.S.”
Meanwhile, the crypto community has strongly criticized the SEC for its unclear set of crypto regulations. In May, Coinbase challenged the regulator for its stance on the application of the Howey Test.
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