The SEC successfully landed another blow in its ongoing battle with Blockvest, LLC for alleged securities fraud and the sale of unregistered securities.  The Honorable Michael S. Berg, a federal magistrate for the Southern District of California, recommended granting terminating sanctions against the Wyoming-based blockchain company for filing false and forged affidavits with the court.  Terminating sanctions are a severe remedy rarely imposed, except in extreme instances of grossly improper litigation behavior.  Once terminating sanctions are applied, a default judgment is entered against the defending party, depriving it of a trial and generally dismissing the case.

Blockvest found itself under SEC investigation after raising $2.5 million in a pre-ICO sale of tokens that it neither registered with the SEC nor qualified for an exemption from registration.  The SEC’s complaint further alleged that Blockvest not only falsely-claimed to be a “licensed and regulated tokenized crypto currency exchange and index fund,” but also falsely-claimed to be “registered” and “approved” by the SEC—putting Blockvest squarely in the SEC’s crosshairs.

Blockvest has suffered setback after setback in its litigation with the SEC.  In February 2019, the court issued a preliminary injunction against the company for violating antifraud provisions of the Securities Act.  When the SEC later discovered that Blockvest had filed false and forged affidavits in contesting the preliminary injunction, the SEC moved for terminating sanction.  Evidence obtained in discovery not only showed that Blockvest had modified witness declarations and forged their signatures, but had also coached witnesses to lie to the SEC.

The magistrate considered alternative censures against Blockvest, such as monetary and discovery sanctions, but concluded they would be ineffective against Blockvest’s “egregious misconduct” that undermined the integrity of the judicial proceeding altogether.

Blockvest will have an opportunity challenge the magistrate’s recommendation. But considering the allegations of securities fraud, and now, evidence of active litigation fraud, it will have a difficult time convincing a court to not follow Judge Berg’s recommendation.