Page 9 of 40 20. In evaluating whether any profit comes from the efforts of a promoter or third party, the SEC issued guidance stating that the inquiry into whether a purchaser is relying on the efforts of others focuses on two key issues: (1) does the purchaser reasonably expect to rely on the efforts of a promoter or third party; and (2) are those efforts the undeniably significant ones (including the essential managerial efforts which affect the failure or success of the enterprise) as opposed to efforts that are more ministerial in nature. 21. If a digital asset has the aforementioned characteristics, then it is highly likely that the SEC will consider it to be a security subject to the SEC's registration requirements. Indeed, it appears that the SEC views most cryptocurrencies as securities, and Latinum projects all such hallmarks of a security. 22. Plaintiffs reasonably expected to rely on the efforts of Defendants KJ and Latinum, and those efforts of Defendants KJ and Latinum were undeniably significant (i.e., essential managerial efforts which affect the failure or success of the enterprise). 23. Applying the Howey Test, an investment in Tokens is considered an investment contract – i.e., a security. 24. Section 5(a) of the Securities Act (15 U.S.C. § 77e(a)) provides that, unless a registration statement is in effect as to a security or an exemption from Case 2:22-cv-10208-RHC-JJCG ECF No. 1, PageID.9 Filed 02/01/22 Page 9 of 40
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