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Initial Coin Offering and Oil  

The founder of a company that allegedly perpetrated a fraudulent initial coin offering to fund oil exploration and drilling in California has received permanent officer-and-director and penny stock bars.

According to a Securities and Exchange Commission order, David T. Laurance and Tomahawk Exploration LLC attempted to raise money through the sale of blockchain-based digital tokens called “Tomahawkcoins.”

The SEC’s order said that the defendants’ promotional materials used inflated projections of oil. The company’s own internal analysis contradicted these projections. Additionally, Tomahawk misled prospective investors by suggesting that Tomahawk possessed leases for drilling sites, when in fact it did not.

According to the order, the marketing materials described Laurance as having a “flawless background.” However, Laurance did not disclose his past criminal conviction for his role in fraudulent securities offerings.

Furthermore, the order said that Tomahawk claimed token owners would be able to convert the Tomahawkcoins into equity. Therefore, investors would be able to potentially profit from the anticipated oil production and secondary trading of the tokens.

However, the initial coin offering failed to raise money. Nonetheless, Tomahawk issued tokens through a “bounty program” in exchange for online promotional services.

“Investors should be alert to the risk of old-school frauds, like oil and gas schemes, masquerading as innovative blockchain-based ICOs,” said Robert A. Cohen, chief of the SEC’s cyber unit.

The SEC’s order found that Tomahawk and Laurance violated the registration and antifraud provisions of the federal securities laws. Without admitting or denying the SEC’s findings, Tomahawk and Laurance consented to a cease and desist order and Laurance consented to an officer-and-director bar, penny stock bar and a $30,000 penalty.

Securities and Exchange Commission Resources

The SEC’s Office of Investor Education and Advocacy (OIEA) issued an Investor Alert on Aug. 14 to encourage investors to check the background of anyone selling or offering an investment. The free and simple search tool is located at Investor.gov. In addition, OIEA’s Investor Bulletin about ICOs highlights warning signs of investment fraud including “guaranteed” high investment returns and unlicensed sellers.