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FINRA Issues Its First Cryptocurrency Disciplinary Action

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In its first disciplinary action involving cryptocurrencies, the Financial Industry Regulatory Authority filed a complaint against Timothy Tilton Ayre of Agawam, Massachusetts, charging him with securities fraud and unlawful distribution of an unregistered cryptocurrency security called HempCoin.

HempCoin was started with a focus on “serving the needs of the agriculture, hemp, legal cannabis and tobacco industries,” according to its website.

FINRA alleges that from January 2013 through October 2016, Ayre attempted to “lure” public investment in his “worthless” public company, Rocky Mountain Ayre Inc. (RMTN) by issuing and selling HempCoin. He allegedly publicized it as “the first minable coin backed by marketable securities,” FINRA stated, thereby making “fraudulent, positive statements” about RMTN’s business and finances.

RMTN was quoted on the Pink Market of the OTC Markets Group and traded over the counter. The Pink Market is the lowest, speculative tier of the OTC Markets. There are no required financial standards or disclosure requirements.

Also alleged in the complaint is that in June 2015, Ayre bought the rights to HempCoin and repackaged it as a security backed by RMTN common stock. FINRA states that Ayre marketed HempCoin as “the world’s first currency to represent equity ownership” in a publicly traded company.

Ayre allegedly promised investors that each coin was equivalent to 0.10 shares of RMTN common stock. Investors actually mined 81 million HempCoin securities through late 2017 and bought and sold the security on two cryptocurrency exchanges.

According to CoinMarketCap data, HempCoin’s market cap was $6.2 million as of Tuesday, with the price quoted at $0.026237.

FINRA alleges that Ayre never registered HempCoin and “no exemption to registration applied.”

Further, FINRA alleges that from January 2013 through October 2016, Ayre defrauded investors in RMTN with 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.”

A disciplinary complaint represents the initiation of a formal proceeding by FINRA; no decision as to allegations has been made. An individual or firm can file a response and request a hearing before a FINRA disciplinary panel.

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