Florida Court Denies Motion for Reconsideration in SEC’s Crypto Fraud Lawsuit Against Arbitrade and Cryptobontix

News | March 19, 2024 By:

On Wednesday, March 6, 2024, the United States District Court for the Southern District of Florida denied a motion for reconsideration filed by James L. Goldberg, one of the defendants in an ongoing securities fraud lawsuit brought by the Securities and Exchange Commission (SEC).

The SEC filed the lawsuit in September 2022 against Arbitrade Ltd., Cryptobontix Inc., and several individuals including Goldberg and Tory R.J. Hogg. The complaint alleges that between March 2018 and January 2019, the defendants engaged in a “classic pump and dump scheme” involving a crypto asset called Dignity (DIG) tokens. The SEC claims the defendants made false and misleading statements about Arbitrade acquiring $10 billion worth of gold bullion from a company called SION Trading FZE to back the value of the DIG tokens. According to the complaint, Arbitrade never actually obtained title to the gold.

After the initial lawsuit was filed, Goldberg filed a motion to dismiss, arguing the court lacked subject matter jurisdiction because DIG tokens are not securities. The court denied the motion, finding the SEC plausibly alleged the scheme satisfies the Howey test for what constitutes an investment contract under federal securities laws. Unsatisfied with this ruling, Goldberg then filed the current motion for reconsideration in November 2023. He primarily relied on a recent court decision in another crypto case, SEC v. Ripple Labs, to argue the dismissal ruling was erroneous.

In its March 6th order, the Southern District Court denied Goldberg’s motion for reconsideration. The court found Goldberg did not identify any intervening change in law or new evidence required for reconsideration. While Goldberg argued the Ripple Labs decision showed the initial ruling was clearly wrong, the court determined that a differing opinion in another case did not prove clear error or manifest injustice in this one. As an alternative request, Goldberg also sought to certify the question of whether digital asset sales on trading platforms constitute securities transactions for an interlocutory appeal. However, the court concluded this issue did not meet the high standard for such certification.

The denial means the securities fraud lawsuit will continue to move forward in the Southern District of Florida. A final resolution will help determine whether crypto sales made on public exchanges, similar to those alleged here, fall within the regulatory authority of the SEC. This remains an important issue as the digital asset industry continues to expand.

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