SEC Charges Former State Senator Over Digital Asset 'Scam'

The Securities and Exchange Commission (SEC) has pressed charges against a former state senator for his role in a $4.3 million token sale that promised outlandishly high returns.

The SEC confirmed Friday it had filed a complaint against David Schmidt, a former Republican state senator for Washington State, as well as two other people for their role promoting the sale of "Meta 1 Coins."

Filed in the Western District of Texas on March 16, the complaint accuses Robert Dunlap and Nicole Bowdler, as well as Schmidt, of violating antifraud and securities regulations when promising investors returns of nearly 225,000 percent. They also claimed the coin was risk-free and would never lose value.

The SEC said defendants made "numerous false and misleading statements," including that Meta 1 Coin was backed by an art collection valued at $1 billion, or a gold deposit valued at $2 billion, that was regularly audited by an accounting firm.

"The defendants made audacious claims about the Meta 1 Coin and would say almost anything to separate investors from their money," said David Peavler, the SEC's regional director at the Fort Worth Regional Office.  “Investors should always look skeptically at promoters who claim that their investment cannot lose value or that investors will receive massive returns.”

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In total, Meta 1 Coin raised $4.3 million from around 150 investors, some based in the U.S. The digital assets were never distributed to investors, however. Some of the proceeds were funneled to a Chicago-based fund, Pramana Capital, as well as to another individual, Peter Shamoun. The SEC claims defendants used investors' money to fund lavish lifestyles, including the purchase of a $215,000 Ferrari.

Launched in 2018, Meta 1 Coin's website doesn't include a description of what the purpose of the coin is. Its Twitter page is filled with pictures and short clips of physical Meta 1 Coins, talking about the disruptive potential of blockchain technology.

Its terms of use also include some pretty weird statements, including:

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Schmidt, a moderate Republican, was initially elected as a representative for Washington State back in 1994. After serving four terms, he became a state senator in 2002, before losing his re-election bid in 2006. Now based in Arizona, he works as a consultant, writer and radio program host, according to his LinkedIn page.

In 2012, Washington's electoral watchdog, the Public Disclosure Commission (PDC), fined Schmidt $10,000 for improperly using more than $41,000 in donations to reimburse himself for lost wages between 2003-2006, as well as mortgage repayments and personal travel costs.

Schmidt denied misusing campaign dollars, claiming in 2011 that campaign funding rules were "very open to interpretation."

Schmidt could not be reached for comment on the SEC complaint.

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The SEC is seeking civil penalties and permanent injunctions against Schmidt and the other two defendants, as well as for investors to be refunded. The regulator also wants Pramana Capital and Shamoun to hand over any funds received from the Meta 1 Coin Trust sale.

CoinDesk reached out to both Meta 1 Coin Trust and Pramana Capital for comment, but had not received a response by press time.