Pocketinns sued over cryptocurrency investment offering

New Jersey's securities regulator has sued Pocketinns Inc., a West Windsor firm that sought to raise up to $46 million through the sale of a cryptocurrency called PINNS Tokens.

In its lawsuit filed in Essex County on Wednesday, the New Jersey Bureau of Securities alleges that Pocketinns, which is a blockchain-driven online rental marketplace, and its president, Sarvajnya G. Madia of North Brunswick, sold more than $400,000 of unregistered securities in New Jersey.

The sales to 217 investors, including two in New Jersey, allegedly occurred between Jan. 15 and Jan. 18, 2018, the state said. The terms called for the sale of PINNS Tokens in exchange for Ethereum, a cryptocurrency.

Cryptocurrencies, which have names like Bitcoin and Litecoin, are created and stored electronically in what's called the blockchain, a distributed public database that keeps a permanent record of all transactions.

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Via the blockchain, cryptocurrency, which are typically not backed by tangible assets,  can be traded around the world directly from one person to another, 24 hours a day, at only the cost of a very small fee. 

The lawsuit seeks to block Pocketinns and Mada from selling securities in New Jersey, assess civil fines, and require restitution or rescission to investors who were sold securities from New Jersey.

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“Our securities laws apply to anyone offering or selling securities in this state, regardless of whether those securities are purchased with U.S. dollars or virtual currencies, and regardless of whether they are distributed in certificated form or through blockchain technology,” Attorney General Gurbir S. Grewal said in a statement.

“The lawsuit we filed makes it clear that individuals selling cryptocurrency-related investment products in New Jersey must comply with the law or face serious consequences.”

Pocketinns also disclosed that it would use investors' funds for its business, including development and engineering, research, sales and marketing, court papers state. PINNS Tokens could be used for various transactions in the "Pocketinns ecosystem that was still under construction" or as a speculative investment, the state said, citing company documents. 

According to the lawsuit, Pocketinns failed to make sure that its investors had a personal net worth of more than $1 million, or an annual income of more than $200,000, amounts high enough so federal registration rules were not required.

Only 11 of the 217 investors who purchased the PINNS Tokens provided paperwork to substantiate their accredited investor status, court papers state.

"By failing to take reasonable steps to verify that purchasers were accredited investors capable of bearing the increased risks associated with unregistered securities, the defendants violated the law and exposed investors to financial losses that could have been devastating,” said Paul Rodríguez, acting director of the state Division of Consumer Affairs in a statement.

"We’re reminding investors to be extra vigilant about fully vetting what is being sold, especially before investing with cryptocurrency.” 

David P. Willis is an award-winning business reporter and "Press on Your Side" columnist who has written about consumer issues for more than 20 years. Contact him at @dpwillis732, 732-643-4039; dwillis@gannettnj.com.