A blockchain company in Princeton offered and sold more than $400,000 of unregistered securities from New Jersey in the form of cryptocurrency, according to a lawsuit announced today by Attorney General Gurbir Grewal and the New Jersey Bureau of Securities within the Division of Consumer Affairs.
Pocketinns Inc., and its president Sarvajnya Mada, offered and sold a cryptocurrency called PINNS Tokens in exchange for the cryptocurrency Ethereum, or Ether.
Pocketinns and Mada offered and sold approximately $410,000 of PINNS Tokens to 217 investors, in violation of New Jersey’s Uniform Securities Law, between Jan. 15 and Jan. 31, 2018, the state alleged. Mada acted as an unregistered agent and Pocketinns employed an unregistered agent in further violation of the law, according to the lawsuit.
“Our securities laws apply to anyone offering or selling securities in this state, regardless of whether those securities are purchased with U.S. dollars or virtual currencies, and regardless of whether they are distributed in certificated form or through blockchain technology,” said Attorney General Grewal in a statement. “The lawsuit we filed makes it clear that individuals selling cryptocurrency-related investment products in New Jersey must comply with the law or face serious consequences.”
According to the complaint, Pocketinns sought to raise up to $46 million through the sale of up to 30 million PINNS Tokens.
The minimum required investment was one Ether, which at the time was valued at approximately $728. The current value of one Ether is approximately $280.
Pocketinns claimed on its website that the investor funds would be used for development and engineering, research, resources, legal and compliance, sales and marketing, communications and media, infrastructure, and finance and acquisitions. PINNS Tokens could be used for various transactions through the Pocketinns ecosystem that was still under construction, according to the website.
All PINNS Tokens purchasers were required under federal rule to be verified as accredited investors who met certain net worth and income thresholds, having a personal net worth in excess of $1 million or have an individual income in excess of $200,000 yearly for the past two years or in excess of $300,000 with a spouse.
However, only 11 of the 217 investors who purchased the PINNS Tokens provided documentation to substantiate their accredited investor status, the state’s complaint said.
“By failing to take reasonable steps to verify that purchasers were accredited investors capable of bearing the increased risks associated with unregistered securities, the defendants violated the law and exposed investors to financial losses that could have been devastating,” said Paul Rodríguez, acting director of the Division of Consumer Affairs, in a statement. “We’re reminding investors to be extra vigilant about fully vetting what is being sold, especially before investing with cryptocurrency.”
The OAG seeks to permanently prevent Pocketinns and Mada from selling securities in New Jersey.
Additionally, it seeks to assess civil monetary penalties against the Pocketinns and Mada for each securities law violation, and require them to offer restitution to investors.