Court Grants Partial Win to SEC in Case Against Blockchain-Based Film Distribution Firm The Movie Studio and CEO

On Friday, July 26, 2024, the United States District Court for the Southern District of Florida granted partial summary judgment in favor of the Securities and Exchange Commission in a case against The Movie Studio, Inc., a film production and distribution company and its President and CEO Gordon Scott Venters.

The SEC had accused TMS, which utilizes blockchain technology in the distribution and licensing of films, and Venters of violating various securities laws related to registration and anti-fraud provisions between April 2017 and December 2020. Specifically, the SEC alleged that the defendants sold unregistered securities to investors, claiming exemptions from registration under Regulation D and Section 4(a)(2) of the Securities Act that did not apply.

While the court found that the SEC established TMS sold unregistered securities, this did not automatically mean laws were broken, as exemptions could exist. However, the court determined TMS failed to prove it met the requirements for exemptions under Rule 506(b) or (c) of Regulation D or Section 4(a)(2). Specifically, TMS did not show it had reasonable belief that less than 35 non-accredited investors were involved as required, nor that proper financial disclosures were made to those investors. The court also noted TMS did not provide evidence showing Rule 701’s exemption for employee compensation applied.

On these grounds, the court granted summary judgment to the SEC on the claim that TMS violated securities registration laws. However, the court denied summary judgment on claims that the defendants engaged in fraud or that Venters acted as an unregistered broker, finding material facts in dispute. This included allegations TMS misrepresented details about its film library, production plans, studio ownership, distribution deals, and use of blockchain technology. It was also disputed whether Venters regularly participated in securities transactions or received transaction-based compensation to qualify as a broker under the law.

The case will now proceed to trial, where the SEC will have the opportunity to prove its remaining fraud and broker registration claims. If liability is found, penalties could include fines, restitution, and officer and director bars. The ruling is a victory for the SEC on the registration issue but leaves open further fact-finding on the more serious fraud accusations.

Please contact BlockTribune for access to a copy of this filing.