The Financial Industry Regulatory Authority (FINRA) today announced it had charged Timothy Ayre, president of Rocky Mountain Ayre, Inc. (RMTN), with fraud and unlawful distribution of cryptocurrency securities. The charges stem from RMTN's actions regarding the cryptocurrency HempCoin (HMP) – not to be confused with HempCoin (THC). FINRA claims the move is a first for the agency, which historically has done little in the crypto space beyond issuing investor advisories.
HempCoin was a minable cryptocurrency on its own blockchain, and according to RMTN was available on two exchanges, C-Cex and Yobit.
According to the complaint, RMTN became the majority holder of HempCoin in 2015 when it entered into an asset purchase agreement with THC Farmaceuticals. RMTN exchanged stock for 1.5 billion of the 2.5 billion HempCoin. This deal granted to RMTN the rights to distribute the cryptocurrency.
RMTN specified in the purchase agreement that all token holders would be granted one share of RMTN for each 10 HempCoin held. Consequently, FINRA claims the digital currency was a security.
In a 2016 press release, RMTN described itself as "a holding company increasing its asset and revenue base through acquisition and/or creation of operating entities," adding, "The Company currently has two entities in its portfolio and is focusing its efforts on its Crypto-Currency, Hempcoin, at this time."
According to the complaint, the second holding in RMTN's portfolio was a struggling restaurant Ayre purchased from a friend in 2014. This $25,000 acquisition allegedly occurred solely so Ayre could preserve his holding company's position as a publicly traded entity, providing the "holding company" an actual holding. After the purchase, according to the complaint, "the Bistro's manager and chef left that business and Ayre's girlfriend – who had no prior restaurant experience – became the Bistro's only employee … The Bistro struggled and its revenues were barely sufficient to maintain operations."
Despite this state of affairs, RMTN presented itself in disclosures as a holding company continuously acquiring hospitality and retail businesses, and it repeatedly issued press releases stating HempCoin was backed by "marketable securities."
Though this is the first cryptocurrency disciplinary action FINRA has initiated, it was perhaps only a matter of time before the organization became involved, having issued warnings and reports and hosting discussions on the topic since at least the beginning of last year.
The complaint, brought by FINRA's enforcement department, requests that a FINRA review panel sanction Ayre. That could come in the form of a fine, a censure, or a suspension or bar from working in the securities industry.