Crypto Founder Should Lose SEC Fraud Case as Sanction: Judge

A cryptocurrency firm and its founder should lose their defense to an SEC fraud case because of their “egregious misconduct and deceit,” a California federal magistrate judge recommended Monday.

Reginald Buddy Ringgold III, Blockvest LLC’s founder, filed false statements to support their opposition to the Securities and Exchange Commission’s bid for a preliminary injunction in the fraud suit, a U.S. District Court for the Southern District of California magistrate judge said. The agency moved for “terminating” sanctions, which would hand the SEC a win in the case, and Judge Michael S. Berg recommended granting the request.

Ringgold, who allegedly deceived investors through an unregistered initial coin offering, has represented himself since February 2019. The attorney representing Ringgold and Blockvest withdrew from the case because they instructed him to file documents they prepared without the assistance of counsel that fell “far short of the professional standards” the attorney’s firm required, according to court filings.

Blockvest and Ringgold’s “submission and reliance on the false and fraudulent declarations"—including one purported declaration filed the day before they received the actual signed declaration—"at issue was willful and constitutes bad faith,” Berg said. The “breadth of the falsehoods” and “attempt to conceal wrongdoing” demonstrate that Ringgold “intentionally presented false evidence” to the court.

The misconduct “caused unnecessary delay and expense” for the SEC “and the public it seeks to protect” and “greatly impeded the resolution of the case by obscuring critical facts,” the recommendation said. Ringgold also kept citing the faked declarations in court filings even after the SEC moved for terminating sanctions, Berg said.

Although terminating sanctions are a “harsh remedy,” Ringgold and Blockvest’s “egregious misconduct and willful deception concerning key issues in this litigation justifies the imposition,” Berg said. The judge “considered alternative monetary, evidentiary, and issue preclusion sanctions,” but “under the facts of this case, even broad sanctions would not adequately redress” Ringgold’s deception.

The parties have until April 30 to file written objections to Berg’s report.

The case is SEC v. Blockvest LLC, S.D. Cal., No. 18-cv-02287, report and recommendation filed 4/20/20.