On September 13, 2021, the SEC obtained a cease-and-desist order settling charges against New York City-based GTV Media Group Inc. and GTV's parent company, Saraca Media Group Inc. (the G-Entities), for conducting an illegal unregistered offering of digital asset securities of GTV, as well as a related action regarding an unregistered offering of GTV common stock (GTV stock offering). The G Entities and Phoenix-based Voice of Guo Media Inc. (collectively, respondents) have agreed to pay more than $539 million to settle the SEC action (see SEC GTV Settlement).

In a related action, on September 13, 2021 the office of the New York Attorney General (NYAG) announced that the NYAG has secured a recovery of almost $480 million unlawfully obtained by the G-Entities from investors who financially backed GTV and Saraca (See NYAG Settlement).

The SEC found that from April through June 2020, the G Entities solicited individuals to invest in a GTV initial coin offering (ICO) of digital tokens referred to as G-Coins or G-Dollars (GTV ICO). Through July 2020, respondents collectively raised approximately $487 million from more than 5,000 investors under the GTV ICO, including from individuals in the US. (During the same period, the G Entities offered and sold approximately $339 million worth of GTV common stock under the GTV stock offering.) The SEC found that the G Entities touted the GTV ICO as an investment opportunity with a likelihood of significant returns. The SEC found that the G Entities offered and sold G-Coins and G-Dollars under the GTV ICO as investment contracts under the Howey test (see Practice Note: Practice Note: SEC Regulation of Digital Assets: The Howey Test and the SEC's Framework for Digital Asset Regulation).

The SEC found that respondents violated Sections 5(a) and 5(c) of the Securities Act (Securities Act) (15 U.S.C. § 77e(a)) with respect to both the GTV ICO and the GTV stock offering by offering and selling securities without filing a registration statement with the SEC or qualifying for an exemption from registration. Respondents agreed to the cease-and-desist order without admitting or denying the SEC's findings. The G-Entities agreed to pay disgorgement of over $434 million plus prejudgment interest of approximately $16 million on a joint and several basis, and to each pay a civil penalty of $15 million.

On September 13, 2021, the NYAG announced that the G Entities had entered into an assurance of discontinuance agreement with the NYAG (NYAG agreement) under which the G Entities admitted to unlawfully conducting pre-sales of two digital token instruments, the G-Coin and G-Dollar, under the GTV ICO that they promoted as digital asset securities or cryptocurrencies, raising more than $30 million from purchasers under the GTV ICO and selling stocks under the GTV stock offering without registering in New York state. The NYAG agreement provides that the G-Entities are required to pay $479.9 million as monetary relief to settle the NYAG claims. The G Entities are tied to Chinese billionaire Guo Wengui and were tied to former White House advisor Steve Bannon, who is listed as the 2020 founder of GTV and formerly served as a non-executive director of GTV.

Under the New York Martin Act (N.Y. Gen. Bus. Law § 352 et seq.), the G Entities were required but failed to register as securities dealers and/or commodities broker-dealers in selling the digital instruments under the GTV ICO and the GTV stock under the GTV stock offering (see Practice Note, Enforcement Proceedings Under New York's Martin Act). The NYAG agreement also provides that the $479.9 million monetary relief due under the NYAG agreement shall be deemed satisfied by the G-Entities' payment of $479.9 to an escrow account designated by the SEC under the SEC cease-and-desist order in the SEC GTV Settlement (see SEC GTV Settlement).

For further information on regulation of digital assets, see Practice Notes:

See also Practical Law's Blockchain Toolkit.