A U.S. Judge has shown some sympathies to Robert B. Ladd, the CEO of Bitcoin mining firm MGT Capital Investments, over an alleged $27mn pump-and-dump scheme. District Judge Edgardo Ramos said that the SEC had failed to provide sufficient evidence that Ladd had violated securities laws. However, the Commission had successfully demonstrated his role in “aiding and abetting” the scheme.
The Case Against Bitcoin Miner CEO
Judge Ramos tossed out the SEC’s claims that Ladd had violated securities laws by failing to mention the existence of a small group of investors who collectively owned more than 5% of his bitcoin mining business.
Despite being the group who orchestrated a $27mn pump-and-dump scheme involving MGT and two other companies, the Judge stated that Ladd had no duty to disclose details of their stock ownership under existing regulations.
He did, however, conclude that the SEC had adequately implicated Ladd in the scheme by revealing a long history between him and the investor group. This included paying writers to promote MGT with false reporting. The Judge ruled:
With this history behind him, Ladd’s knowledge of the [investor] group’s continuing violations of the securities laws becomes even more plausible.
A second area in which the judge found sufficient evidence surrounded claims that the MGT CEO had misled investors over the appointment of John McAfee.
In May 2016, Ladd announced that MGT was considering taking McAfee on as CEO after agreeing to purchase one of his companies.
A $27M Pump-and-Dump
Ladd was initially accused by the SEC in Sept. 2018 of taking part in a pump-and-dump scheme led by one of the largest shareholders in Riot Blockchain, Barry Honig.
Honig, along with former Riot Blockchain CEO John O’Rourke, and investors John Stetson and Michael Brauser, manipulated stock prices in three microcap companies, the SEC alleged. They inflated prices to rake in a massive $27mn while leaving investors with “virtually worthless shares.”
The multiyear scheme took place between 2013 and 2018 and was spearheaded by Honig, according to the SEC. Once the group had acquired shares in a company at a low price, they would pay writers to promote it before dumping their shares on the inflated market.
Honig and two others implicated in the case did not admit to any wrongdoing. However, they did settle out of court last July and were barred from penny stock trading. Settlements with Stetson, O’Rourke, and Brauser are still pending according to Court records.
Ladd Denies His Involvement in the Scheme
Ladd meanwhile has fought the case against him by the SEC, claiming to have been lumped in with the other co-defendants. He maintained that the SEC had failed to demonstrate his involvement with the investor group, prove that he sold any pumped-up shares or participated in false promotions.
While Ramos was sympathetic to some of Ladd’s arguments, he sustained that the paid-promotion highlighted Ladd’s liability in “aiding and abetting” the scheme.
He also sustained that Ladd had violated securities laws over the misleading McAfee announcement. Ramos said:
Ladd unambiguously declared in a press release that McAfee had sold his company for billions of dollars, implicitly linking that past successful transaction with the potential future success of MGT… Ladd then amplified this false message by paying a promoter to repeat it in a newsletter that same day.
The case remains ongoing and Ladd will still have to answer for his actions. However, the $27mn suit against him has certainly been reduced.
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