Gladius Network Fraud (Pt. 2)

At this point, it has been firmly established that Crypto Capital AG is Crypto Capital Co/AG/SA/Inc/OÜ.

It has also been established that Crypto Capital AG is Trilliant AG.

Finally, the ties between Trilliant AG and Gladius Network have been established, with depth. As noted in the prior section, three of the core members of Gladius’ team are Trilliant AG transplants — a fact that strongly implies that there presence on the team is no mere coincidence.

Later in the report, additional information will be analyzed that provides even more reason to believe that Gladius Network was essentially operated (and perhaps still is), by Crypto Capital Co / Global Trade Solutions.

However, for now, this report will take a look at the SEC’s actions in relation to Gladius Network.

SEC’s Baffling Lack of Action RE: Gladius Network Securities Fraud

One of the focal points of this report will be analyzing how the SEC, in spite of all of the obvious red flags and warning signs surrounding Gladius Network, came to the conclusion that no financial penalty should be administered to Gladius. Even further, the SEC also left the door open for Gladius Network to actually register their token as a security.

Trilliant AG Had Openly Announced Their Partnership With Gladius Network

In Trilliant AG’s whitepaper, they explicitly state that they were partnered with Gladius Network :

This information was included in Trilliant’s whitepaper months before the SEC posted its press release in February 2019. Which means there was ample opportunity to assess this information and conduct a deeper investigation, which would have made the identities of those responsible for Gladius Network more than apparent for the SEC.

Its reasonable to suggest that it would have taken minimal research, at best, to stumble upon Trilliant AG.

Below are the first page results of a very rudimentary Google search query that shows dozens of sources attaching individuals from Gladius directly to Trilliant:

It is also worth reiterating that the Trilliant whitepaper explicitly stated that they were owned/founded/started by Crypto Capital AG:

Thus, even if the SEC were only looking into Trilliant AG merely as a lead without dedicating any substantial resource to investigating the firm, a cursory glance at the whitepaper should have made the connection to Crypto Capital readily apparent.

Taking a Closer Look at Trilliant AG

One could argue that the SEC did come across Trilliant AG, but they simply were unaware of their connection to Crypto Capital AG (despite the wealth of public reports about the company leading up to the February 2019 press release).

However, even if this were the case, there are still a significant number of red flags surrounding Trilliant AG that independently warrant further investigation.

For example:

  • Trilliant AG is not on record as having a license of any sort that would allow them to deploy cryptocurrency ATMs around the planet. In fact, at face value, Trilliant AG’s offering strongly reflects a shady, money laundering operation.
  • None of the individuals listed as part of the team have any prior experience that would lead one to believe that they could actually run an operation such as the one that they were proposing their whitepaper.
  • The details about the project itself were vague, at best.
  • By the time Trilliant started marketing this ICO, the parent company for Trilliant had already changed names, addresses and company directors…twice.
  • Serious logistics regarding the actual deployment of the ATMs themselves were not covered at all.
  • There was no method or proposal for how investors were supposed to keep track of how much money each individual ATM was supposed to earn in order to ensure that they were receiving their fair share of dividends from their ‘fractional ownership’ of said ATM(s).
  • There was absolutely no math behind the financial projections made in the whitepaper.

Based on the SEC’s Description of Their Investigation into Gladius, They Should Have Been More Than Aware of Gladius’ Background

What is remarkable about these oversights by the SEC is that they state in their February press release that Gladius Network actually assisted them in the investigation.

Specifically, the press release states:

“Gladius self-reported to the SEC’s Enforcement staff in the summer of 2018, expressed an interest in taking prompt remedial steps, and cooperated with the investigation.”

And also that:

“The SEC did not impose a penalty because the company self-reported the conduct, agreed to compensate investors, and will register the tokens as a class of securities.”

What makes SEC’s behavior even more odd is the fact that they explicitly state in the press release that they had levied fines on two prior ICOs that “agreed to pay penalties for similar registration violations and agreed to similar undertakings.

The information above prompts a few questions, at least. Specifically, two important ones that come to mind are:

How did the SEC miss the glaringly obvious connections to the industry’s biggest fraud?

And

What made Gladius Network an exception to the fines that they levied on other crypto companies that did the exact same thing as Gladius Network?

The obvious answer to the latter question appears to be that Gladius Network decided to voluntarily divulge their egregious violation of United States securities law. At least this is what the SEC appears to be implying in their press release.

However, documentation of the actual administrative proceeding suggests that Gladius Network may not have simply divulged information because they were a noble organization that spontaneously saw the error of their ways before reaching out to the SEC to voluntarily offer a $15 million refund to all of their customers.

Reviewing the SEC’s Enforcement Action Against Gladius Network

Below, is an embedded copy (.pdf embed) of the SEC’s administrative proceeding for Gladius Network [Release №10608]:

The document, titled, ‘Order Instituting Cease-And-Desist Proceedings Pursuant to Section 8A of the Securities Act of 1933, Making Findings, and Imposing a Cease and Desist Order’ , paints a slightly different picture of Gladius Network’s actions than the SEC press release.

Specifically, on the first page, under section II, the document states:

“In anticipation of the institution of these proceedings, Respondent has submitted an Offer of Settlement (“Offer”) that the Commission has determined to accept. Solely for the purpose of these proceedings and any other proceedings brought by or on behalf of the Commisssion, or to which the Commission is a party, and without admitting or denying the findings herein, except as to the Commission’s jurisdiction over it and the subject matter of these proceedings, which are Pursuant to Section 8A of the Securities of 1933, Making Findings, And Imposing a Cease-And-Desist Order (“Order”), as set below.”

The language above is a bit dense, but here are the important takeaways:

Disclaimer: This report is not being written by an attorney, so this interpretation could be inaccurate to some extent in certain parts. Any open source corrections from attorneys (preferably those with experience in U.S. securities law) are welcome if discrepancies are found in the annotated interpretation below.

  • The Respondent (Gladius Network), did not actually come out the woodwork to self-report a breach of U.S. securities law. On the contrary, the document states that Gladius Network essentially asked for leniency in anticipation of impending enforcement action and the SEC essentially decided to grant their request.
  • The phrase, “Solely for the purpose of these proceedings and any other proceedings brought by or on behalf of the Commission, or to which the Comission is a party…,” seems to imply that the judgment/enforcement action outlined in this document would be considered sufficient recompense for any and all issues or grievances that the SEC had, has or may have with Gladius Network concerning their illegal securities offering.
  • Gladius Network did not have to admit any wrongdoing. The only things that Gladius Network was forced to agree with are the “Commission’s jurisdiction over [Gladius Network’s securities offering] and the subject matter of [the] proceedings.”

Summary of the SEC’s Findings

The SEC’s findings are underneath the heading titled, ‘Summary’, which starts on the first page.

The Summary begins by affirming that Gladius is a ‘Nevada limited liability corporation’ (LLC) and that Gladius was created in 2017.

Apparently, the primary purpose of Gladius Network was to develop a blockchain network outfitted for cybersecurity.

Specifically, the SEC notes that, “Gladius raised approximately $12.7 million worth of Ether during its ICO, based on the exchange rate to USD of Ether at the time of the offering. Gladius did not register the offering pursuant to the federal securities laws, nor did it qualify for an exemption to the registration requirements.”

Perhaps what is most troubling is that, in spite of the glaring oversights outlined throughout this report thus far, the SEC asserts in the administrative proceeding that they took the necessary steps to investigate Gladius Network.

Below is a brief recap of the relevant research steps and findings the SEC claims they took during their investigation of Gladius Network:

  • The SEC states they positively identified numerous web pages that Gladius Network used to promote their token offering.
  • The SEC specifically states that they saw details about the offering on, “the Gladius Web Pages, including the details of the token sale, the offering process, the role the GLA Token would play in the Gladius Network, and how Gladius would use the proceeds of the token sale to develop its network.”
  • The SEC notes that it looked through Gladius’ whitepaper.
  • The SEC was acutely aware of the various actions of Gladius’ marketing team. Specifically, the SEC states that, “Another Gladius management member posted on social media that ‘as our platform grows and more websites buy our services, the value of the coin increases.’”
  • The SEC also states, “On Gladius Web Pages, Gladius principals and agents stated that ‘[w]e’ve been approached by some of the largest exchanges, they’re very interested’”.

Despite this alleged investigation into the inner workings of Gladius Network, the SEC still failed to recognize that the primary individuals responsible for the promotion of Gladius Network were all core members of the Crypto Capital AG project, Trilliant — most notably, Ori Levi, a member of Trilliant AG, held the title of Head of Marketing during his tenure with Gladius Network.