FINRA Charges HempCoin ICO Issuer With Securities Fraud

Crime, News, Regulation | September 12, 2018 By:

The Financial Industry Regulatory Authority (FINRA) has issued securities fraud charges against a Massachusetts resident for an unregistered initial coin offering (ICO). FINRA said the case is the agency’s first disciplinary action involving cryptocurrencies.

FINRA has accused Timothy Tilton Ayre of selling unregistered securities in the form of the HempCoin token, which was said to represent equity ownership in Ayre’s publicly traded company Rocky Mountain Ayre, Inc. (RMTN). RMTN was quoted on the Pink Market of OTC Markets Group and traded over the counter.

Ayre bought the rights to HempCoin in June 2015 and repackaged it as a security backed by RMTN common stock, according to the complaint. HempCoin was marketed as “the first minable coin backed by marketable securities,” and “the world’s first currency to represent equity ownership” in a publicly traded company. FINRA alleges that Ayre promised investors that each token was equivalent to 0.10 shares of RMTN common stock.

“Investors mined more than 81 million HempCoin securities through late 2017 and bought and sold the security on two cryptocurrency exchanges,” the complaint said. “FINRA charges Ayre with the unlawful distribution of an unregistered security because he never registered HempCoin and no exemption to registration applied.”

The regulator said the scheme ran for several years. From January 2013 through October 2016, Ayre allegedly defrauded investors in RMTN by making materially false statements and omissions regarding the nature of RMTN’s business, failing to disclose his creation and unlawful distribution of HempCoin, and making multiple false and misleading statements in RMTN’s financial statements.

Under FINRA rules, Ayre can file a response and request a hearing before a FINRA disciplinary panel. If found guilty, he may be fined, censured, suspended or permanently barred from the securities industry.

This was not the first time that Ayre had a brush with regulators. In 2009, his investment company received a $10,000 fine and month-long suspension from FINRA for failing to establish and maintain a supervisory system. In 2011, Ayre Investments was again fined $10,000 and suspended for two months for procedural failures around options products, including not maintaining electronic communications of two representatives.