Issuer pays $5 million penalty for unregistered digital offering

Securities Digital Assets SEC Initial Coin Offerings Virtual Currency Enforcement Courts

On October 21, the SEC announced the U.S. District Court for the Southern District of New York entered a final judgment against a tech company issuer that raised approximately $100 million through an unregistered initial coin offering. As previously covered by InfoBytes, the SEC filed an action alleging the issuer failed to provide required disclosures to investors and did not register the offer or sale of its digital tokens with the SEC, as required by Section 5 of the Securities Act of 1933 (the Act). The SEC argued that the issuer marketed the digital tokens as an investment opportunity and told investors that they could earn future profits from the issuer’s efforts to create, develop, and support a digital “ecosystem.” 

The court granted summary judgment in favor of the SEC at the end of September, concluding, among other things, that the issuer violated Section 5 of the Act when it conducted an unregistered offering of securities that did not qualify for any exemption from registration requirements. The final judgment (i) requires the issuer to pay $5 million in a civil penalty; (ii) permanently enjoins the issuer from violating Section 5 of the Act; and (iii) requires the issuer, for a period of three years, to provide notice to the SEC before engaging in any “issuance, offer, sale or transfer” of specified assets.