A cryptocurrency platform in New Jersey is facing a massive lawsuit over what state regulators have deemed illegal and unregistered sales. Pocket Inns Inc., located in West Windsor, New Jersey, sough to raise an alleged $46 million through sales of its new cryptocurrency token known as PINNS.
Pocket Inns Is in Big Trouble
The New Jersey Bureau of Securities is now filing suit against the company alleging that it sold unregistered securities to users. The sales occurred between the firm and 217 potential investors, two of which were in New Jersey, on the dates of January 15 through 18 in 2018. The company was advertising PINNS to customers in exchange for Ethereum tokens, which at the time were trading for nearly $1,400 each.
The lawsuit is seeking damages brought on by the sale of the unregistered tokens. It is also accounting for legal fees and asking that restitution be paid to any investors involved, which the New Jersey state regulator alleges were scammed into accepting unlicensed monies. Attorney General Gurbir S. Grewal issued a statement regarding the suit, explaining:
Our securities laws apply to anyone offering or selling securities in this state, regardless of whether those securities are purchased with U.S. dollars or virtual currencies, and regardless of whether they are distributed in certificated form or through blockchain technology… The lawsuit we filed makes it clear that individuals selling cryptocurrency-related investment products in New Jersey must comply with the law or face serious consequences.
According to legal documents, Pocket Inns. Inc. used some of the transaction funds to develop new branches of its business, including research, engineering, sales and marketing. While this is allowed in the state of New Jersey, the company failed to attain proof that its customers each had a net worth of approximately $1 million each or an annual income of at least $200,000. This is required in New Jersey if a company is not going to be subjected to registration laws.
Thus far, only 11 customers have been able to substantiate these claims, leaving the finances of 206 customers unaccounted for.
Why Disobeying the Rules Leads to Further Problems
Paul Rodriguez, acting director of the state Division of Consumer Affairs, released a statement mentioning:
By failing to take reasonable steps to verify that purchases were accredited investors capable of bearing the increased risks associated with unregistered securities, the defendants violated the law and exposed investors to financial losses that could have been devastating… We’re reminding investors to be extra vigilant about fully vetting what is being sold, especially before investing with cryptocurrency.
Issues like these have come up in the past, and the Securities and Exchange Commission (SEC) has been on the tails of several businesses that have sought to sell unregistered securities to investors. Among the most recent cases was one involving the Gladius Network in late February of this year.