SEC Charges Crypto Platform and Executives for Registration Failures
The SEC charged a trading platform and its founder with illegally raising $8 million through the unregistered offering and selling of a crypto asset security.
In a Complaint filed with the U.S. Northern District Court of Illinois, the SEC alleged that the trading platform and founder facilitated the offer and sales of crypto assets as investment contracts to approximately 200 U.S. and foreign investors without registering with the SEC. The SEC stated that the trading platform touted the crypto asset as an "exchange-token" in its marketing materials, with which the proceeds of the offering would be used to operate the trading platform. However, the SEC said that these claims were false and the founder instead misappropriated $900,000 of the investment proceeds for personal use.
The SEC said that the founder ultimately resigned after several other executives learned of the misappropriation, after which these executives began operating the trading platform. Despite using the trading platform as a "marketplace for securities" and facilitating transactions of crypto asset securities, these executives also allegedly failed to comply with appropriate SEC registration requirements.
The Complaint alleged violations of:
- SA Section 5(a) ("Prohibitions relating to interstate commerce and the mails");
- Exchange Act Section 10(b) ("Regulation of the Use of manipulative and deceptive devices") and Rule 10b-5 ("Employment of manipulative and deceptive devices.");
- Securities Act Section 17(a) ("Records and Reports");
- Exchange Act Section 5 ("Transactions on unregistered exchanges");
- Exchange Act Section 15(a) ("Registration and regulation of brokers and dealers"); and
- Exchange Act Section 17A ("National system for clearance and settlement of securities transactions").
To settle the charges, the SEC is seeking an order to (i) permanently restrain the trading platform and the charged individuals from further regulatory violations, (ii) disgorge of all ill-gotten gains, (iii) pay a civil penalty and (iv) permanently ban the founder from serving as an officer or director of any securities issuer.