IN THE MATTER OF:                )
)                                                                                                                                                    Case No. AP-19-02

Respondents.                                 )
_____________________  )



In its Amended Order to Show Cause (“Complaint”) the Missouri Securities Division,
(“MSD”) seeks to impose sanctions on the Respondents for purported violations of the State’s
securities laws. In order to proceed with its case, the MSD must have subject matter jurisdiction
to hear the case. Therefore, it must demonstrate that the purported violations involve or concern
a “security”. In the present case, Troptions are not securities under the applicable legal standards
and, as such, the case must be dismissed for lack of jurisdiction.

SEC No-Action Letter

It is well established that statutory interpretation by an agency charged with
administering the governing statute is entitled to considerable deference and weight. Reno v.
National Transportation Safety Bd., 45 F.3d 1375 at 1378 (9th Cir.1995). Therefore, whether the
SEC considers cryptocurrencies of a nature similar to Troptions, securities should be of
significant guidance to the Commissioner.

On April 2, 2019, the SEC issued a No Action Letter with respect to Turnkey Jet, Inc.
The SEC concluded that a token (similar to a Troptions coin) could be offered and sold without


registration under the Securities Act and Exchange Act; effectively precluding its designation as
a security.

In key respects, Troptions are akin to the Turnkey Jet, Inc., tokens. Troptions are sold for
immediate use as a coin for the exchange of other assets. Troptions are marketed for the purpose
of buying and selling assets and the Troption transactions are recorded on block chains.
Importantly, none of the various Troptions have gone through an Initial Coin Offering (ICO), a
process which does, in certain instances, render the issue a security in the view of the SEC.

Troptions Are Not Like Securities

In 1975, the U.S. Supreme Court decided United Housing Foundation, Inc. v. Forman,
421 U.S. 837 (SC 1975), a case which considered the use of the word “stock”. In that matter, in
order to acquire an apartment in Co-Op City in New York one had to purchase stock from
Riverbay Housing Corp., a non-profit; where the amount of stock purchased correlated to the
number of rooms of an apartment.

The Court “rejected at the outset any suggestion that the present transaction, evidenced
by the sale of shares called “stock” must be considered a security transaction simply because the
statutory definition of a security includes the words any . . . stock” Id p. 848, and that “In search
for the meaning and the scope of the word “security” in the Act(s), form should be disregarded
for substance and the emphasis should be on economic reality. Id. (cites omitted).

The court applied common sense to determine that an interest referred to as “stock” in a
“residential apartment in a state subsidized cooperative” is not a security. The Court noted that
the shares have none of the characteristics of the ordinary concept of a security”. Id p. 851.
By this measure, neither do Troptions. They do not generate income or profit from the
entrepreneurial or management efforts of others. Id. p. 852. Common sense suggests that a
“coin” that is used to facilitate, on average, Two Billion Dollars ($2,000,000,000) of transactions


each month, is not a security. The countless holders of Troptions who buy and sell assets of
every kind are using Troptions as a coin; they are not making an investment for income or profit.
To suggest otherwise would be to ignore the proven reality of Troptions.

Missouri Definition of Security

Under Missouri law, Section 409.1-102 (28), “Security” means a note, stock; security
future; bond; debenture; evidence of indebtedness; certificate of interest or participation in a
profit-sharing agreement; collateral trust certificate; preorganization certificate or subscription;
transferable share; investment contract; voting trust certificate; certificate of deposit for a
security; fractional undivided interest in oil, gas, or other mineral rights; put call straddle, option,
or privilege on a security, certificate of deposit, or group or index of securities, including an
interest therein or based on the value thereof; put, call, straddle, option, or privilege entered into
on a national securities exchange relating to foreign currency; or, in general, an interest or
instrument commonly known as a “security”; or a certificate of interest or participation in,
temporary or interim certificate for, receipt for, guarantee of, or warrant or right to subscribe to
or purchase, any of the foregoing. The term:

(A) Includes both a certificated and an uncertificated security;
(B) Does not include an insurance or endowment policy or annuity contract under which
an insurance company promises to pay money either in a lump sum or periodically for life or
other specified period;
(C) Does not include an interest in contributory or noncontributory pension or welfare
plan subject to the Employee Retirement Income Security Act of 1974;
(D) Includes as an “investment contract” an investment in a common enterprise with the
expectation of profits to be derived primarily from the efforts of a person other than the investor
and a “common enterprise” means an enterprise in which the fortunes of the investor are


interwoven with those of either the person offering the investment, a third party, or other
investors; and
(E) May include as an “investment contract”, among other contracts, an interest in a
limited partnership and a limited liability company and an investment in a viatical settlement or
similar agreement.

The Howey Test

In the present case, the issue boils down to whether Troptions are considered an
investment contract, rendering them securities. The U.S. Supreme Court in SEC v. Howey, 328
U.S.-293 (1946) established a test to determine whether a transaction is an investment contact. A
transaction will be considered an offering of securities if:

1. It is a contract or transaction for an investment of money,
2. The investment of money is “a common enterprise”,
3. The investor has an expectation of profits from its investments, and
4. Those efforts would come from the effects of others, such as a promoter.

The Supreme Court’s test in Howey was deliberately written to accommodate undefined
or “non-traditional” securities categories, such as those that might be more variable in nature and
require further analysis to determine whether they are, in fact, securities offerings. This is
evident by the broad definition of “investment contract” applied when courts evaluate the would

be security and would include a “contract”, transaction, or scheme whereby an investor lays out
money in a way intended to secure income or profit from its employment.” Golden v. Garafolo,
678.F.2d 1139, 1144 (2d Cir. 1982).
The pertinent part of the Howey test with respect to cryptocurrencies such as Troptions is
whether an investor lays out money in a way intended to secure income or profit from its
employment. The answer with respect to Troptions is that they are acquired by individuals for


the purpose of acquiring assets in the normal course of commerce; not as an investment. The
proof of this assertion is in the billions of dollars of deals transacted using Troptions.

The Summary Allegations

In the “Summary of Allegations” of the Complaint, there is nothing to suggest that
Troptions are sold on the basis of an expectation of income or profit. The so-called “investors”
purchase “Troption coins, exchange Troptions for cash, trade them for other cryptocurrencies, or
trade them for items of value. The fact that websites or social media sites do not state whether
Troptions are a product, security or commodity is not applicable in determining whether
Troptions are a security. The websites and social media sites do not disclose fees or
commissions charged to buy and sell the coin, because there are no fees or commissions charged
in connection with the purchase or sale of Troptions. The mere accusation that something is sold
from a website or through social media does not render it a security.

Moreover, the Complaint identifies several Missouri “investors” who 1.) invested cash,
property, services or other items of value in Troptions based on 2.) representations that Troptions
would increase in value and produce a profit to Troption holders because of the efforts of others.
Even if this were true (which it is not) it would not meet the Howey test for a security for the
following reasons:

As a practical matter, it is difficult to imagine how someone trading property, services or
items of value for Troptions would have a reasonable expectation that he or she was buying an
investment to be used to generate income or to increase the value (capital appreciation) of
Troptions Corp., itself. In addition, paying cash and receiving a “coin” called Troptions has no
indicia of an “investment in a security”.


Further, there is no allegation in the Complaint that Troptions will generate any income
to a holder of Troptions. The notion that Troptions would increase in value as Troptions are used
by holders of Troptions to acquire other assets is true. If one were to sell an asset purchased with
Troptions which has appreciated in value, some in the common vernacular would consider that a
profit it is not “profit” in the context of the securities laws. This is really no different that
someone buying a painting of a particular artist. The fact that transactions by others which raise
the price of paintings of that same artist make your painting more valuable, does not make the
painting a security or meet the income or profit test of Howey; notwithstanding that you have
experienced the capital appreciation of your asset.

Purported Misrepresentation

The MSD sets forth numerous purported misleading statements without sufficient
evidence to determine who made it, when it was made or where the statement was made. These
are essential elements in pleadings involving allegations of securities fraud. Further, the fact
that “many statements appear to be materially misleading . . .” is hardly an appropriate standard
for an enforcement action. Even if there were misstatements (which there are not) there would
be no violation subject to the auspices of the MSD, unless such statements were: a.) material
(likely to influence a reasonable person to buy or sell), b.) made in connection with the purchase
or sale of a security, and c.) made with scienter – a purposeful intent to mislead. The Complaint
makes no mention of these factors and offers no argument that each of the requisite indicia of
securities fraud is present with respect to each alleged misstatement. State securities enforcement
actions should not be fishing expeditions; so as to take something that may appear to be
misleading in the hope that it will later be proven to actually be misleading.
Instead of facts supporting the MSD’s cursory conclusions, it maintains that “these
statements” are misleading because:


a) other cryptocurrencies have decreased in value;
b) government regulations can affect the value of cryptocurrency; and
c) competition among different cryptocurrencies can affect the value of Troptions cryptocurrency.

With respect to a.) that other cryptocurrencies decreased in value has no bearing on the
price of Troptions. In fact, a review of the price movement of the different types of Troptions
sold to Missouri residents would demonstrate that all of the different categories of Troptions
have gone up in value, many times over. As such, there is simply no correlation between some
cryptocurrencies going down and Troptions, which have gone up. The MSD has wrongly
presumed that Troptions have no value. If that were the case, two billion dollars of average
monthly transaction volume would be impossible.

As to b), the failure to disclose that government can affect the value of a security by
regulation does not constitute a material misstatement. In the case of Keyspan Corporation
Securities Litigation, 383 F. Supp. 2d 358 (E.D.N.Y. 2008), the Court held that public utilities
are under no obligation to disclose information relating to the possible effects of the regulatory
process on the utilities business. Id. p. 377. This includes the risk of rate increases and the risk
that government might reject its application for a license to operate certain nuclear power plants.

Although this case concerned public utilities, its reasoning would equally apply to
cryptocurrency; “that securities laws require disclosure only of information that is not otherwise
in the public domain”. Id. The advent of government regulation of cryptocurrency has been the
source of great speculation in the public domain for years now.
Turning to c), the failure to disclose the possible effect of competition also does not rise
to the level of a material misstatement. In the case of In Re Compaq Securities Litigation, 848 F.


Supp 1307 (S.D. Texas 1993), the Court found that, “Management’s failure to disclose
information regarding increased competitive pressure and effect of domestic economic recession
was not securities fraud”.

Missouri Residents

There is nothing alleged in the recounted statements of Missouri Residents 1, 2, 3, 4, 5
and 6 which would suggest in any way that Troptions are a security or were represented to be a
security, with the requisite characteristics as set forth above.
As to Resident 4, the statement that Troptions would continue to increase in value based
on proof of use and deals done using Troptions, fairly accurately describes what was actually
disclosed to purchasers.


The MSD’s alleged misstatements as described in the Complaint are not sufficiently
plead and do not support claims of securities fraud. Other than conclusory assertions, there is no
articulated basis in the Complaint to establish that Troptions are an investment contract or a
security. There is simply nothing alleged in the Complaint which, even if taken as true, would
support the legal determination that Troptions are a security. As such, the MSD lacks subject
matter jurisdiction to pursue the charges against the Respondents.

By: _Todd A. Zuckerbrod
Todd A. Zuckerbrod, Esq.
Todd A. Zuckerbrod, P.A.
FL. Bar No.: 573337
40 S.E. 5th Street, Suite 400
Boca Raton, FL 33432
Tele: (561) 544-8144
Fax: (561) 544-1101



I HEREBY CERTIFY that on this 28th day of May, 2019, a copy of the foregoing was
sent by Email and first class mail to: Steven Reed, Director of Enforcement, Missouri Securities
Division, Missouri, Office of the Secretary of State, 600 W. Main St., Room 229, Jefferson City,
MO 65102,, David M. Minnick, Commissioner of Securities, Office of
the Secretary of State, Missouri, 600 W. Main St., Room 229, Jefferson City, MO 65102, Laurie
Dawson, Securities Office Manager, 600 W. Main St., Room 229, Jefferson City, MO 65102,,, Michael D. Pospisil, Pospisil Swift,
LLC 1600 Genessee, suite 340, Kansas City, MO 64102
Todd_A. Zuckerbrod
Todd A. Zuckerbrod, Esq.