Just a month after launching an exam sweep of entities based in Massachusetts raising money from initial coin offerings, Commonwealth Secretary William Galvin on Wednesday charged a Brookline man and his company with the unregistered sale of a security marketed as “Caviar Tokens.”
According to the complaint, Kirill Bensonoff and his Cayman Islands company, Caviar, allegedly told Massachusetts investors that the proceeds from the Caviar Tokens would be used to fund house-flipping real estate projects, in addition to financing the acquisition of a portfolio of various cryptocurrencies.
“In sum and substance, Bensonoff and Caviar seek to use the proceeds of the ICO to finance the creation of a hedge fund and offer freely transferable shares to investors in the form of Caviar Tokens,” the complaint states.
The complaint filed Wednesday by the Massachusetts Securities Division states that Caviar raised approximately $3.1 million through a combination of cryptocurrencies and cash.
“Bensonoff and Caviar have offered and continue to offer Caviar tokens without registration or exemption from registration in the Commonwealth,” Galvin said in a statement.
Bensonoff formed Caviar in the Cayman Islands to avoid state securities regulation, Galvin says, but has conducted business out of his Brookline home.
“This serves as a warning to those who would try to use the recent Bitcoin craze to circumvent securities laws in Massachusetts,” Galvin added.
The Massachusetts Securities Division, he continued, “will be monitoring these cases closely, to ensure Massachusetts investors are not being taken advantage of by so-called ICO promoters trying to cash in on the latest get-rich-quick scam.”
While the company was prohibited from selling to American investors, advertisements for the so-called Caviar Tokens were targeted to Americans on various social media platforms, the complaint states.
Also, until approximately Jan 4, 2018, the Caviar website “was generally accessible to any U.S. resident,” the complaint states. “Within 24 hours of appearing to provide testimony to the Enforcement Section, Bensonoff applied, or caused to be applied, a filter to exclude U.S.-based IP addresses from accessing the Caviar website.”
One of the internet ads referenced in the complaint stated that Caviar was “the hottest ICO of December” and promised offerees “Crypto and Real Estate in one TOKEN.”
The complaint also alleges that Caviar failed to take appropriate measures to prevent Americans from investing in its product.
In one such instance, a Massachusetts Securities Division investigator was able to participate in the token sale using the name of a popular cartoon character and a passport image obtained using a Google Image search.
The complaint seeks a cease and desist order, censure and an administrative fine.