SEC Raises Fair Fund Bond Amount in Unregistered Crypto Token Case

In an ongoing effort to return money to harmed investors from an unregistered crypto asset token offering, the SEC increased the bond for the administrator of a Fair Fund. 

According to the cease-and-desist Order, a Cayman Islands-based software developer and its founder conducted an unregistered securities offering of crypto asset tokens. The SEC found that the respondents raised approximately $30 million from nearly 4,000 investors worldwide. The SEC found that the tokens were marketed as appreciating assets that would become tradable on crypto asset platforms and promoted via a whitepaper, website, social media, live online events, and through paid promoters. The SEC further found that the respondents made false or misleading statements about project development timelines, token value, and partnerships.

The SEC determined that the respondents violated Securities Act Sections 5(a) ("Sale or delivery after sale of unregistered securities") and 5(c) ("Necessity of filing registration statement") by offering and selling investment contract securities without registration or an available exemption. The Commission ordered the respondents to pay $30 million in disgorgement, $4.6 million in prejudgment interest, and $750,000 in civil penalties—totaling more than $35.3 million—and created a Fair Fund. The Order also required the destruction of all tokens in the respondents’ possession, removal of the tokens from trading platforms, and barred the founder for five years from participating in any crypto asset securities offering.

In April 2024, the SEC appointed a fund administrator and set the bond at $10.75 million. An additional $10 million was recovered from the respondents and added to the Fair Fund. The SEC’s latest order raised the administrator’s bond to $20.75 million—the amount currently in the fund—in accordance with its rules to safeguard the Fair Fund for distribution.