SEC freezes church assets over sale of unregistered “God-backed” crypto tokens

Colorado-based pastor Eligio “Eli” Regalado and his wife Kaitlyn face in court after allegedly fleecing investors through the sale of an unregistered crypto token called INDXcoin. The token was marketed to devout Christians as a “God-backed” digital asset.

The couple reportedly raised about $3.2 million from sales of the token, which they issued through their online church Victorious Grace.

Colorado securities regulators filed a lawsuit against the Regalados, accusing them of fraudulent activities and illegally selling securities without proper registration. As a result, a judge in Colorado froze the assets of Victorious Grace Church. According to the court documents, the Regalados claimed that INDXcoin was backed by a cryptocurrency index and had enough assets to secure its value.

However, the Colorado Securities Commission claims that the token had little to no backing, aside from the couple’s claim that it was backed by God’s Guarantee of Success.

“Defendant Eli took advantage of the faith of the potential investors,” the complaint states. “He explained that the success of their investments was guaranteed by God.

God-backed INDXcoin qualifies as a security

The Regalados initially argued that INDXcoin was a utility token and not a securities offering and was therefore exempt from securities regulations. However, experts refuted their claim and stated that the token should be considered a security.

Undeterred, the pair claimed that God viewed INDXcoin as a utility token Investors who expressed concerns about the lack of returns were urged by Eli Regalado, citing divine guidance, to hold on to their investments.

The Regalados also controlled the Kingdom Wealth Exchange, the platform through which INDXcoin could be exchanged for USD.

Colorado regulators allege that the couple routinely shut down the platform to prevent a bank run. Last year they decided to close the exchange citing a lack of active stakers. They then instructed INDXcoin holders to stay invested and not question the situation, claiming that God had instructed them to do so.

Over the course of their fundraising, the Regalados allegedly embezzled $1.3 million for personal expenses, including luxury items, cosmetic dental procedures, vacations and home renovations.

In a video posted on the INDXcoin community website, Eli Regalado admitted to the allegations but explained that a significant portion of the funds were used for the tax office and home renovations that God had assigned them to do.

The Regalados are scheduled to appear in court on Jan. 29 for a hearing on the Colorado Securities Commissioner’s request for a preliminary injunction.

Last year, in its ongoing case against blockchain company Terraform Labs the SEC asked a judge to decide whether certain cryptocurrencies should be considered securities apply.

Recently, a federal judge in the SEC and Coinbase case questioned whether allowing the Commission to impose its rules on Coinbase gave the agency leverage There would be markets for which it has no supervisory authority.

“I want to understand why your standard does not extend to the collectibles or merchandise market,” U.S. District Judge Katherine Polk Failla told SEC lawyers in the courtroom.

“I really fear that your argument just goes too far.