Investors in a cannabis cryptocurrency startup obtained a default judgment for more than $12 million against rapper The Game and other defendants. The Game did not submit an opposition to the renewed motion for default judgment against him filed by the plaintiffs in Astley Davy, et al. v. Paragon Coin, Inc. et al., No. 18-cv-00671-JSW (N.D. Cal. Jun. 23, 2021). The order granting the default explained, “[t]he general rule of law is that upon default the factual allegations of the complaint, except those relating to the amount of damages, will be taken as true.” Id. at 2 (quoting Geddes v. United Fin. Grp., 559 F.2d 557, 560 (9th Cir. 1977)). 

The “PRG Tokens” at issue in the lawsuit were a security offered or sold by means “which include[d] an untrue statement of a material fact or omit[s] … a material fact necessary in order to make the statements, in the light of the circumstances under which they were made, not misleading.”  Id.

The plaintiffs had previously not met their burden to show that The Game was a statutory seller for purposes of claims under Section 12(a)(1) and 12(a)(2) of the Securities Act of 1933, 15 U.S.C. Sections 77(a)(1)-(2) and 77o(a). The court in Davy cited to Pinter v. Dahl, 486 U.S. 622, 643-647, 650 n.26 (1988) (internal quotation marks omitted) to explain “that a person who successfully solicits the purchase of a security and who is motivated at least in part by a desire to serve his own financial interests or those of the security owner, i.e. a statutory seller can be held liable under Section 12(a)(1) while an individual who is merely a collateral participant cannot be liable.” Further, “individuals who solicit securities transactions but who may not actually transfer title in the security can be held liable.” Pinter, 486 U.S. at 646-47. In granting the default judgment, the Davy court concluded that the plaintiffs’ allegations were sufficient to show that The Game “acted for his own gain or for Paragon’s gain and, thus, could be considered a statutory seller.”