The U.S. Securities and Exchange Commission has obtained a temporary restraining order against Veritaseum, which raised $14.8 million in an initial coin offering in 2017, and its founder Reggie Middleton.

The SEC claimed in an emergency filing Monday with the U.S. District Court for the Eastern District of New York that Middleton, through Veritaseum Inc. and Veritaseum LLC, illegally raised funds via the sale of unregistered securities.

Since ruling that coins or tokens offered in ICOs could be securities in 2017, the SEC further clarified its stance in April via its “Framework for ‘Investment Contract’ Analysis of Digital Assets.” That framework defines factors the SEC considers as to whether an ICO is a security include an expectation of profit, whether the token relates to the achievement of a future product and whether the ICO is creating or supporting a market for a digital asset.

In the case of Veritaseum, the SEC claims Middleton and his companies made “material misrepresentations and omissions about the unregistered securities”and that his companies “knowingly misled investors about their prior business venture.”

According to the lawsuit, Middleton pitched VERI tokens, the tokens offered in the Veritaseum ICOs as software, even going as far as calling them gift cards — thus making the offering illegal. “There was no registration statement filed or in effect for the offers and sales of VERI, and no exemption from registration applied,” the lawsuit noted.

The illegal activity does not stop there. The SEC also alleges that Middleton was involved in a “pump-and-dump” scheme on an unnamed exchange, artificially inflating the price of VERI tokens by 315% in the process.

The temporary restraining order prevents both Middleton and Veritaseum from selling any funds from its ICO, but just how much of those funds are left is another question. Veritaseum was last in the news in July 2017 when $8.4 million in tokens offered by the company in its ICO was allegedly stolen by hackers. “Allegedly” is the key term here, since it was noted at the time that the hackers sold the stolen tokens on the open market to raise funds in actual Ethereum tokens.

The market responded to the lawsuit as would be expected. VERI tokens dropped almost 53%, to $6.94. The decline in the popularity of the token is not new, however, since its price peaked at $474.09 in January 2018, according to figures from Coinmarketcap.

Image: Veritaseum