InfoBytes Blog
SEC orders cryptocurrency company to register tokens as securities or pay more than $30 million fine
On August 9, the SEC issued a cease and desist order to a cryptocurrency company accused of allegedly holding an unregistered securities offering. The company raised approximately $30.9 million by selling cryptocurrency tokens to investors through an initial coin offering from November 2017 to January 2018. The SEC asserted, however, that the tokens were offered and sold as investment contracts (and therefore should be considered securities), and that the company’s offering constituted an unregistered securities offering. “A purchaser in the offering of [the tokens] would have had a reasonable expectation of obtaining a future profit based upon [the company’s] efforts in using the proceeds from the offering to create an online identity attestation system that would increase the token’s value on crypto asset trading platforms,” the SEC said in the order, which alleged violations of Sections 5(a) and 5(c) of the Securities Act. While at the time of the offering the company required certain purchasers to agree that they were buying the tokens for “utility” rather than an investment, the SEC argued that the company’s marketing promotions and statements made by early purchasers indicated that purchasers “had a reasonable expectation of profit.” Under the terms of the order, the company agreed to register its tokens with the SEC and notify purchasers in its offering that they may be able to claim a refund on their token purchases. The company also agreed to pay a $300,000 civil penalty. If the company fails to take these actions it faces a $30.9 million fine, minus the amount already paid to the SEC or to token purchasers, the order stated. The SEC noted that the company has already voluntarily taken steps to prepare for registration.