R0Sll R: Via ECF and UPS Overnight
R0Sll R: Via ECF and UPS Overnight
R0Sll R: Via ECF and UPS Overnight
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
NEW YORK REGIONAL OFFICE Jorge G. Tenrelro
BROOKFIELD PLACE WRITER'S DIRECT DIAL
200 VESEY STREET. ROOM 400 TELBPHONB: (212) 336-9145
NEW YORK. NY 10281-1022 [email protected]
The consent Judgment is fair and reasonable and in the public interest, in light of SEC v.
Citigroup Global Markets, Inc., 752 F.3d 285 (2d Cir. 2014). Among other things, the
Judgment: (1) permanently enjoins Defendants from committing additional violations of the
federal securities laws the Commission charged them with violating, including injunctions
against engaging in the unregistered offer and sale of securities and committing fraud in
connection with the offer, purchase and sale of securities, including market manipulation; (2)
permanently bars Defendants from engaging in any offering of digital securities; (3) provides for
the collection of over $9.4 million, comprised of disgorgement and prejudgment interest against
Defendants, and of a significant civil penalty against Middleton; and (4) establishes a fund with
the amounts collected from Defendants in satisfaction of the Judgment, so that the victims of
Defendants' fraud may be compensated.
If the Judgment is acceptable to the Court, we respectfully ask that the Court docket the
executed copy of it with the three enclosed consents attached. ·
-~:R0Sll=r
Jorge G. Tenreiro
Enclosures
cc (via ECF): Counsel for Defendants
Case 1:19-cv-04625-WFK-RER Document 61 Filed 11/01/19 Page 2 of 19 PageID #: 2696
- against- ECFCase
Defendants.
-------------------x
FINAL JUDGMENT AS TO DEFENDANTS REGINALD MIDDLETON,
VERITASEUM, INC., AND VERITASEUM, LLC
The Securities and Exchange Commission ("Commission") having filed a Complaint and
Defendants Reginald Middleton ("Middleton"), and Veritaseum, Inc. and Veritaseum, LLC
("Veritaseum," together with Middleton, "Defendants"), having acknowledged being served with
the Complaint and entered a general appearance; and having consented to the Court's jurisdiction
over Defendants and the subject matter of this action, consented to entry of this Final Judgment
without admitting or denying the allegations of the Complaint (except as to jurisdiction and
except as otherwise provided herein in paragraph XX), waived findings of fact and conclusions
of law, and waived any right to appeal from this Final Judgment:
I.
permanently restrained and enjoined from violating, directly or indirectly, Section 10(b) of the
Securities Exchange Act of 1934 (the "Exchange Act") [15 U.S.C. § 78j(b)] and Rule IOb-5
interstate commerce, or of the mails, or of any facility of any national securities exchange, in
(b) to make any untrue statement of a material fact or to omit to state a material fact
necessary in order to make the statements made, in the light of the circumstances
(c) to engage in any act, practice, or course of business which operates or would
Federal Rule of Civil Procedure 65(d)(2), the foregoing paragraph also binds the following who
receive actual notice of this Final Judgment by personal service or otherwise: (a) Defendants'
officers, agents, servants, employees, and attorneys; and (b) other persons in active concert or
II.
Defendants are permanently restrained and enjoined from violating Section l 7(a) of the
Securities Act of 1933 (the "Securities Act") [15 U.S.C. § 77q(a)] in the offer or sale of any
(b) to obtain money or property by means of any untrue statement of a material fact
made, in light of the circumstances under which they were made, not misleading;
or
Federal Rule of Civil Procedure 65(d)(2), the foregoing paragraph also binds the following who
receive actual notice of this Final Judgment by personal service or otherwise: (a) Defendants'
officers, agents, servants, employees, and attorneys; and (b) other persons in active concert or
III.
Middleton is permanently restrained and enjoined from violating Section 9(a)(2) of the Exchange
Act [15 U.S.C. § 78i(a)(2)], by the use of the mails or any means or instrumentalities of interstate
commerce, or of any facility of any national securities exchange, directly or indirectly, to effect,
alone with one or more other persons, a series of transactions in any security registered on a
national securities exchange, any security not so registered, or in connection with any security-
based swap or security-based swap agreement with respect to such security creating actual or
apparent active trading in such security, or raising or depressing the price of such security, for :
Federal Rule of Civil Procedure 65(d)(2), the foregoing paragraph also binds the following who
receive actual notice of this Final Judgment by personal service or otherwise: (a) Middleton's
Case 1:19-cv-04625-WFK-RER Document 61 Filed 11/01/19 Page 5 of 19 PageID #: 2699
officers, agents, servants, employees, and attorneys; and (b) other persons in active concert or
IV.
Defendants are permanently restrained and enjoined from violating Section 5 of the Securities
Act [15 U.S.C. § 77e] by, directly or indirectly, in the absence of any applicable exemption:
or of the mails to sell such security through the use or medium of any prospectus
or otherwise;
instruments of transportation, any such security for the purpose of sale or for
interstate commerce or of the mails to offer to sell or offer to buy through the use
statement has been filed with the Commission as to such security, or while the
registration statement is the subject of a refusal order or stop order or (prior to the
Federal Rule of Civil Procedure 65(d)(2), the foregoing paragraph also binds the following who
Case 1:19-cv-04625-WFK-RER Document 61 Filed 11/01/19 Page 6 of 19 PageID #: 2700
receive actual notice of this Final Judgment by personal service or otherwise: (a) Defendants
officers, agents, servants, employees, and attorneys; and (b) other persons in active concert or
V.
IT IS HEREBY FURTHER ORDERED, ADJUDGED, AND DECREED that, pursuant
to Section 2l(d)(2) of the Exchange Act [15 U.S.C. § 78u(d)(2)] and Section 20(e) of the
Securities Act [15 U.S.C. § 77t(e)], Defendant Middleton is prohibited from acting as an officer
or director of any issuer that has a class of securities registered pursuant to Section 12 of the
Exchange Act [15 U.S.C. § 78!] or that is required to file reports pursuant to Section lS(d) of the
VI.
to Section 2l(d)(5) of the Exchange Act [15 U.S.C. § 78u(d)(5)], Defendants are prohibited from
VII.
Defendants are jointly and severally liable for disgorgement of $7,891,600, representing certain
profits gained as a result of the conduct alleged in the Complaint, together with prejudgment
interest thereon in the amount of$582,535, for a total of $8,474,137. Defendant Middleton is
liable for a civil penalty in the amount of $1,000,000, assessed pursuant to Section 20(d) of the
Securities Act [15 U.S.C. § 77t(d)] and Section 2l(d)(3) of the Exchange Act [15 U.S.C.
§ 78u(d)(3)].
Case 1:19-cv-04625-WFK-RER Document 61 Filed 11/01/19 Page 7 of 19 PageID #: 2701
Pursuant to Section 308(a) of the Sarbanes-Oxley Act of 2002, a Fair Fund is created so
that collected disgorgement, prejudgment interest, and civil penalties can be combined for
Defendant Middleton's obligation to pay a civil penalty of $1,000,000, shall be deemed fully
satisfied by the transmission of the "Frozen Metals" to the Independent Intermediary in the
manner set forth in paragraph VIII herein, by the transmission of the "Frozen Bank Assets" to
the Commission in the manner set forth in paragraph XVI herein, and by the turnover of the
"Frozen Digital Assets" in the manner set forth in paragraph XVII herein.
Amounts ordered to be paid as civil penalties pursuant to this Final Judgment shall be
treated as penalties paid to the government for all purposes, including all tax purposes. To
preserve the deterrent effect of the civil penalty, Middleton shall not, after offset or reduction of
any award of compensatory damages in any Related Investor Action based on Middleton's
payment of disgorgement in this action, argue that he is entitled to, nor shall he further benefit
by, offset or reduction of such compensatory damages award by the amount of any part of
Middleton's payment of a civil penalty in this action ("Penalty Offset"). If the court in any
Related Investor Action grants such a Penalty Offset, Middleton shall, within 30 days after entry
of a final order granting the Penalty Offset, notify the Commission's counsel in this action and
pay the amount of the Penalty Offset to the United States Treasury or to a Fair Fund, as the
Commission directs. Such a payment shall not be deemed an additional civil penalty and shall
not be deemed to change the amount of the civil penalty imposed in this Final Judgment. For
purposes of this paragraph, a "Related Investor Action" means a priyate damages action brought
Case 1:19-cv-04625-WFK-RER Document 61 Filed 11/01/19 Page 8 of 19 PageID #: 2702
against any of the Defendants by or on behalf of one or more investors based on substantially the
VIII.
days after being served with a copy of this Final Judgment, Diamond State Depository, LLC,
metals held in the name of Defendant Veritaseum, LLC and/or Veritaseum Assets, LLC, ordered
frozen pursuant to Orders of this Court dated August I 2, 2019 and August 26, 20 I 9, representing
certain profits gained as a result of the conduct alleged in the Complaint, and listed in Appendix
A, hereto (the "Frozen Metals"), shall transmit the Frozen Metals to a vault in the name of the
Independent Intermediary;
Intermediary, appointed by Orders of this Court dated August I 2, 20 I 9 and August 26, 20 I 9,
shall have the authority to take all reasonable actions to sell, and oversee the sale of the Frozen
Metals, including having the authority to retain a third-party consultant that will help it
determine the best manner of liquidating such assets, and to ensure that all proceeds from the
sale of the Frozen Metals are transmitted to the Commission per the terms set forth in Paragraph
XVI hereto.
The costs and expenses incurred by the Independent Intermediary in connection with
carrying out the obligations of this Paragraph VIII shall be reimbursed pursuant to Paragraph IX
below. The Commission shall hold the proceeds from the sale of the Frozen Metals, together
with any interest and income earned thereon, for distribution with the Veritaseum Fair Fund,
unissued digital tokens attributable to the ~rozen Metals created and held by Defendants or
Upon the transfer outlined above by IDS, all asset freeze obligations imposed upon IDS
by the Court's orders of August 12, 2019 (DE 9), and August 26, 2019 (DE 51) shall terminate
immediately.
IX.
completion of its obligations in paragraphs VIII and XVII, herein, and its obligations under the
Orders of the Court entered August 12, 2019 and August 26, 2019, the Independent Intermediary
shall submit a final invoice for the reasonable costs, fees, and expenses incurred in connection
with its duties for payment by Defendants in accordance with this Court's order dated August 26,
X.
Knight LLP ("Holland & Knight") is appointed Distribution Agent for the Veritaseum Fair Fund,
to assist in overseeing the administration and the distribution of the Veritaseum Fair Fund in
coordination with the Commission's counsel of record, pursuant to the terms of a distribution
plan to be approved by this Court. As Distribution Agent, Holland & Knight will, among other
things:
a) Perform services in accordance with the pricing schedule and cost proposal
without limitation, the digital assets discussed in paragraph XVII, below, and maintain, at all
times, a written description of the digital assets by, at least, name and amount;
g) Calculate a reserve for fees, expenses, and taxes (the "Reserve") and perform all
activities necessary to the distribution of the Veritaseum Fair Fund net the Reserve in accordance
i) File with the Court or provide to the Commission's counsel of record to file with
the Court, a quarterly status report within forty-five (45) days of Court approval of the Plan, and
provide additional reports within thirty (30) days after the end of every quarter thereafter. Upon
establishing an escrow account into which the monies in the Veritaseum Fair Fund are
transferred, Holland & Knight will include a quarterly accounting report, in a format to be
provided by the Commission, in the status report. The status report and quarterly accounting
report will inform the Court and the Commission of the activities and status of the Veritaseum
Fair Fund during the relevant reporting period and will specify, at a minimum:
Case 1:19-cv-04625-WFK-RER Document 61 Filed 11/01/19 Page 11 of 19 PageID #: 2705
ii) A written description by at least name and amount of any digital assets held;
and
iii) An interim accounting of all monies in the Veritaseum Fair Fund as of the
most recent month-end, including the value of the account(s), all monies
under the Plan, and any monies expended from the Veritaseum Fair Fund to
XI.
Kaplan Arase LLP ("Miller Kaplan"), a certified public accounting firm, is hereby appointed as
Tax Administrator to execute all income tax reporting requirements, including the preparation and
filing of tax returns, for the Veritaseum Fair Fund. As the Tax Administrator, Miller Kaplan shall:
Section 468B(g) of the Internal Revenue Code, 26 U.S.C. § 468B(g), and related regulations, and
shall satisfy the administrative requirements imposed by those regulations, including but not
limited to (i) obtaining a taxpayer identification number, (ii) filing applicable federal, state, and
local tax returns and paying taxes reported thereon out of the Veritaseum Fair Fund, and (iii)
the Veritaseum Fair Fund, including but not limited to the Foreign Account Tax Compliance Act.
Case 1:19-cv-04625-WFK-RER Document 61 Filed 11/01/19 Page 12 of 19 PageID #: 2706
Upon request, the Tax Administrator shall provide copies of any filings to the Commission's
counsel of record;
b) Be entitled to charge reasonable fees for tax compliance services and related
expenses in accordance with its agreement with the Commission for the Tax Years 2019-2021;
c) At such times as the Tax Administrator deems necessary to fulfill the tax
obligations of the Veritaseum Fair Fund, submit a request to the Commission's counsel ofrecord
for authorization to pay from the Veritaseum Fair Fund tax obligations of the Veritaseum Fair
Fund;and
XII.
Knight and Miller Kaplan, as Distribution Agent and Tax Administrator, respectively, are entitled to
XIII.
Knight (as Distribution Agent) and Miller Kaplan will be entitled to reimbursement and
compensation from the Veritaseum Fair Fund for the reasonable fees and expenses incurred in the
performance of their duties-Holland & Knight, in accordance with its cost proposal submitted to
the Commission's counsel of record, and Miller Kaplan in accordance with its agreement with the
Commission for Tax Years 2019-2021. The Commission is authorized to approve and arrange
payment of all tax obligations owed by the Veritaseum Fair Fund and the fees and expenses of
Holland & Knight and Miller Kaplan directly from the Veritaseum Fair Fund without further order
of this Court. Holland & Knight and Miller Kaplan will submit invoices of all fees and expenses
Case 1:19-cv-04625-WFK-RER Document 61 Filed 11/01/19 Page 13 of 19 PageID #: 2707
incurred in connection with their respective duties to the Commission's counsel of record for
review and, as appropriate, payment. All payments will be reflected in the quarterly and final
XIV.
completing their duties as set forth herein, Holland & Knight and Miller Kaplan will jointly
provide to the Commission's counsel of record a final accounting in a form provided by the
Commission's counsel of record; a final report providing statistics related to the distribution,
including amounts disbursed to investors, amounts returned and/or not delivered or negotiated,
outreach efforts on unnegotiated payments and the costs and results of the same, and statistics
concerning payments made to individuals and entities; and an affidavit in a format acceptable to
the Commission's counsel of record summarizing their activities as distribution agent and tax
administrator.
xv.
IT IS HEREBY FURTHER ORDERED, ADJUDGED, AND DECREED that Holland &
Knight and/or Miller Kaplan may be removed sua sponte at any time by the Court or upon
motion of the Commission and replaced with a successor. In the event Holland & Knight and/or
Miller Kaplan decide to resign, the resigning entity must first give written notice to the
Commission's counsel of record and the Court of its intention, and resignation, if permitted, will
not be effective until the Court has appointed a successor. The resigning entity will then follow
instructions from the Court or a successor for relinquishing its duties, including all records
related to Veritaseum Fair Fund monies and property. Unless otherwise ordered, the resigning
entity will within thirty (30) days of the notice of resignation or removal, file with the Court an
Case 1:19-cv-04625-WFK-RER Document 61 Filed 11/01/19 Page 14 of 19 PageID #: 2708
accounting and a report of its activities as further set forth above, and provide any other
XVI.
days after being served with a copy of this Final Judgment, Citibank, N.A., Bank of America,
N.A., J.P. Morgan Chase Bank, N.A., Interactive Brokers, LLC, Kraken (Payward, Inc.)
("Kraken"), and Gemini Trust Company, LLC ("Gemini") (the "Financial Entities") or their
subsidiaries, shall transfer the entire balance held in the following accounts, which were frozen
pursuant to an Order of this Court dated August 12, 2019, and/or pursuant to a further Order of
this Court dated August 26, 2019 (the "Frozen Bank Assets"), to the Commission:
JPMC XXXXX3027
JPMC XXXXX8958
Kraken XXXXX5A7Q
Gemini Account ID ending in
5247
Interactive Brokers XXXXX0423
In the case of digital assets in the above accounts held at Kraken and Gemini, Kraken and
Gemini shall transfer the digital assets to Holland and Knight at an address provided by Holland
and Knight within three days of being provided with such address. Holland and Knight shall
provide Kraken and Gemini the address for delivery within three days of being served with this
Final Judgment.
The Financial Entities may transmit payment electronically to the Commission, which
will provide detailed ACH transfer/Fedwire instructions upon request. Payment may also be
made directly from a bank account via Pay.gov through the Commission's website at
by certified check, bank cashier's check, or United States postal money order payable to the
and shall be accompanied by a letter identifying the case title, civil action number, and
name of this Court; and specifying that payment is made pursuant to this Final Judgment. The
Commission shall hold the transferred Frozen Bank Assets, together with any interest and
income earned thereon, for distribution with the Veritaseum Fair Fund,, pending further order of
the Court.
Case 1:19-cv-04625-WFK-RER Document 61 Filed 11/01/19 Page 16 of 19 PageID #: 2710
Upon the payments and transfers outlined above by the Financial Entities, all asset freeze
obligations imposed upon the Financial Entities by the Court's orders of August 12, 2019 (DE
9), and August 26, 2019 (DE 51) shall terminate immediately.
XVII.
assets Defendants transmitted to the Independent Intermediary on August 21, 2019, pursuant to
an Order of this Court dated August 12, 2019, and identified in Schedule A of the letter of
Holland & Knight to the Court dated August 26, 2019 and filed August 29, 2019 (the "Frozen
hereby turned over to Holland & Knight as Distribution Agent, for holding
distributions.
c) All Frozen Digital Assets identified in Schedule A as "Ve Gold GI," "VeGold
receipt.
d) All other digital assets held by the Independent Intermediary shall be returned to
XVIII.
time following the entry of the Final Judgment the Commission obtains information indicating
the Commission or in a related proceeding, the Commission may, at its sole discretion and
without prior notice to the Defendants, petition the Court for an order requiring Defendants to
pay an additional civil penalty. In connection with any such petition and at any hearing ~eld on
such a motion: (a) Defendants will be precluded from arguing that they did not violate the
federal securities laws as alleged in the Complaint; (b) Defendants may not challenge the validity
of the Judgment or any related Undertakings; (c) the allegations of the Complaint, solely for the
purposes of such motion, shall be accepted as and deemed true by the Court; and (d) the Court
may determine the issues raised in the motion on the basis of affidavits, declarations, excerpts of
sworn deposition or investigative testimony, and documentary evidence without regard to the
standards for summary judgment contained in Rule 56(c) of the Federal Rules of Civil
Procedure. Under these circumstances, the Commission may take discovery, including discovery
XIX.
Consent to this Final Judgment of Defendants is incorporated herein with the same force and
effect as if fully set forth herein, and that Defendants shall comply with all of the undertakings
xx.
IT IS HEREBY FURTHER ORDERED, ADJUDGED, AND DECREED that, solely for
purposes of exceptions to discharge set forth in Section 523 of the Bankruptcy Code, 11 U.S.C.
§ 523, the allegations in the complaint are true and admitted by Defendant Middleton, and
further, any debt for disgorgement, prejudgment interest, civil penalty or other amounts due by
Defendant Middleton under this Final Judgment or any other judgment, order, consent order,
decree, or settlement agreement entered in connection with this proceeding, is a debt for the
violation by Defendant Middleton of the federal securities laws or any regulation or order issued
under such laws, as set forth in Section 523(a)(l 9) of the Bankruptcy Code, 11 U.S.C.
§ 523(a)(l 9).
XXI.
shall retain jurisdiction of this matter for the purposes of enforcing the terms of this Final
Judgment.