Cryptocurrency Firm Fined for Unregistered Token Offering
A cryptocurrency firm settled SEC charges for publicly offering tokens that the SEC considered to be securities under the Howey test.
In the Order, the SEC found that the firm conducted an unregistered securities offering, as the tokens were offered and sold as investment contracts and purchasers had an expectation of profits based on the firm's efforts. The firm marketed the offering of these tokens on multiple platforms, including social media, and emphasized to purchasers that the tokens would greatly appreciate in value. The firm ultimately raised approximately $30 million from investors, primarily through simple agreements for future tokens ("SAFTs"), in order to crowdfund software that the firm was developing.
The firm's software was not released until many months after the offerings, resulting in the tokens having no use for that period of time. After the software was released, the tokens were listed on a crypto-asset trading platform. As trading commenced the tokens significantly declined in value.
The SEC determined that the firm violated Securities Act Sections 5(a) and 5(c) ("Prohibitions relating to interstate commerce and the mails"). To settle the charges, the firm agreed to (i) cease and desist, (ii) initiate undertakings to remove any outstanding tokens from the market and refrain from future crypto offerings for five years and (iii) pay a civil monetary penalty of $500,000 plus disgorgement of $30,000,000 and $4,624,754 in prejudgment interest. The firm's CEO and founder agreed to a separate $250,000 penalty.
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