Controversy and Initial Coin Offering
The Securities and Exchange Commission today obtained permanent officer-and-director and penny stock bars against David T. Laurance and Tomahawk Exploration LLC. Laurance is the founder of a company that perpetrated a fraudulent initial coin offering (ICO) to fund oil exploration and drilling in California.
Per the SEC, Laurance and Tomahawk endeavored to raise capital through the sale of blockchain-based digital tokens called “Tomahawkcoins.”
However, the SEC found that the Laurance’s promotional materials boasted inflated projections of oil production. Further, Tomahawk’s financial projections were in direct contrast to the company’s internal analysis.
The firm misleadingly suggested that Tomahawk possessed leases for drilling sites when in fact it did not. According to the SEC, Tomahawk’s materials described Laurance as having a “flawless background” without disclosing his prior criminal conviction for his role in other fraudulent securities offerings.
The SEC order also found that Tomahawk claimed token owners would be able to convert the Tomahawkcoins into an equity position. In doing so, prospective investors would be able to potentially profit from the anticipated oil production and secondary trading of the tokens.
Although the Tomahawk ICO failed to raise the required capital, 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.
As a result of Tomahawk’s fraud scheme, the SEC’s Office of Investor Education and Advocacy issued an investor alert to encourage investors to check the background of anyone selling or offering an investment. Investors may utilize the free and simple search tool on Investor.gov. Finally, the OIEA’s Investor Bulletin about ICOs is another resource describing potential warning signs of investment fraud including “guaranteed” high investment returns and unlicensed sellers.
The SEC order determined that Tomahawk and Laurance violated the registration and antifraud provisions of several federal securities laws. Without admitting or denying the SEC’s findings, Tomahawk and Laurance consented to a cease and desist order.