Securities and Exchange Commission v. Uulala, Inc. et al

On August 4, 2021, the U.S. Securities and Exchange Commission (the “Commission”), represented by Daniel Oren Blau and Jasmine M. Starr, attorneys at the SEC’s Los Angeles regional office, filed a civil enforcement action against Uulala, Inc. (“Uulala”), Oscar Garcia, and Matthew Loughran (collectively, “Defendants”), seeking permanent injunction and civil penalties for alleged fraudulent, unregistered offer, sale of digital asset securities and for sale of promissory notes. This case was filed in the U.S. District Court in the Central District of California with Judges Jesus G. Bernal and Kenly Kiya Kato presiding.

In its complaint, the Commission alleged that, “This case involves the fraudulent and unregistered offer and sale of digital asset securities known as UULA tokens by Defendant Uulala, Inc. (“Uulala”), and its subsequent fraudulent and unregistered offer and sale of promissory notes that could be converted to equity (the “Convertible Notes”).Uulala represented to investors that it had developed a functional mobile phone application (“app”) that allows users to store, transfer, and borrow money, pay bills, make purchases, earn rewards for this activity, and establish a credit history to qualify for microcredit loans.”

The Commission further alleged that, “From December 2017 through January 2019, Uulala raised more than $9 million from over a thousand investors, including those in the U.S., through the sale of UULA tokens in an initial coin offering (ICO). The UULA tokens offered and sold to investors constituted a “security” under the federal securities laws. Uulala, Garcia, and Loughran promoted the UULA offering primarily through a white paper publicly available through Uulala’s website (the “UULA White Paper”). The UULA White Paper contained false claims about Uulala’s technology, including that it incorporated “Proprietary Patent Pending Decentralized Database Technology. This technology was actually owned and patented by a different company, Uulala had no rights to the technology, and Uulala had not in fact incorporated that technology at the time of the UULA offering.”

The Commission also alleged that, “Starting in 2019, Uulala and Garcia raised an additional $500,000 from four U.S. investors through its Convertible Notes offering. Garcia created a presentation slide deck to promote the offering, which they showed to potential investors. This offering document contained false financial information about Uulala, including claiming that it had over $250,000 in revenue in 2019, which Garcia admitted was false.”

The Commission has laid down five claims for relief dealing with alleged fraud in connection with the purchase or sale of securities in violation of Section 10(b) of the Exchange Act and Rule 10b-5 , alleged fraud in the offer or sale of securities in violation of Sections 17(a)(1), (2), and (3) of the Securities Act, alleged fraud in the offer or sale of securities in violation of Sections 17(a)(1) and (3) of the Securities Act, alleged fraud in the offer or sale of securities in violations of Sections 17(a)(3) of the Securities Act, and alleged unregistered offer and sale of securities in violation of Sections 5(a) and 5(c) of the Securities Act.

In its prayer for relief, the Commission has requested the Court to permanently enjoin Uulala and Garcia from participating in any unregistered offering of securities, including any digital asset security and Loughran from violating Sections 5 and 17(a)(3) of the Securities Act [15 U.S.C. §§ 77e, 77q(a)(3)], along with the payment of civil penalties under Section 20(d) of the Securities Act [15 U.S.C. § 77t(d)] and Section 21(d) of the Exchange Act [15 U.S.C. § 78u(d)].

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