July 14, 2021

Website Operator Settles SEC Charges for Unlawfully Touting Digital Assets

An operator of a website that listed and profiled offerings of digital asset securities settled SEC charges for failing to disclose compensation the operator received from the issuers of the digital asset securities.

In the Order, the SEC stated that the operator earned revenue from the website by selling marketing packages to token issuers, but failed to disclose to visitors of the website (i) which token issuers paid for, (ii) how much such issuers paid for those promotions and (iii) the specific platform content and publicity issuers had purchased. The SEC also found that details of the marketing packages the website offered were not accessible on the platform and were only disclosed in response to token issuers' inquiries. As a result of its findings, the SEC determined that the operator violated Section 17(b) ("Use of Interstate Commerce for Purpose of Offering for Sale") of the Securities Act.

To settle the charges, the operator agreed to (i) cease and desist from future violations, (ii) pay $43,000 in disgorgement, plus prejudgment interest, and (iii) a $154,434 civil money penalty.

In a related joint statement, SEC Commissioners Elad Roisman and Hester Peirce criticized the settlement for failing to explain which digital assets promoted by the website were securities. The Commissioners stated that this failure is a result of the SEC's hesitance to provide clear guidance on (i) what constitutes a token being sold as part of a securities offering and (ii) what tokens constitute securities. The Commissioners emphasized that providing piecemeal guidance by means of enforcement actions is not the best approach towards clarifying the application of securities laws to digital assets. The Commissioners urged the SEC to clarify its determinations and analysis of digital assets investment contracts. The Commissioners pointed to Ms. Peirce's proposed safe harbor for token issuers as a potential approach that would provide "clear regulatory guideposts," which the SEC can utilize to bring enforcement actions against entities that ignore the agency.

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