$45 million ICO ordered to return funds to investors

The United States Securities and Exchange Commission (SEC) has settled charges against blockchain technology startup Enigma MPC for conducting an unregistered offering of securities in the form of an initial coin offering (ICO).

According to the SEC’s report, the blockchain firm based in Israel and San Francisco raised about US$45 million [AU$68 million] from sales of its digital assets (ENG Tokens) three years ago.

The SEC claims that the ENG Tokens are securities and that Enigma did not register its ICO as a securities offering, pursuant to the federal securities laws. Therefore, the ICO didn’t qualify for an exemption from the registration requirements.

John T. Dugan, the Associate Director for Enforcement in the SEC’s Boston Regional Office said:

“All investors are entitled to receive certain information from issuers in connection with a securities offering, whether it involves more traditional assets or novel ones.”

ICO claims process and settlement ordered

Notably, the agreement states that Enigma will return funds to harmed investors via a claims process. Accordingly, the firm will have to register its tokens as securities, file periodic reports with the SEC, and pay a $500,000 penalty.

Additionally, the SEC ordered the firm to stop and desist from committing any violations against the provisions of the federal securities laws.

Consequently, Enigma MPC consented to the order without admitting or denying its findings. The firm added that the settlement clears the way for their development team to focus on its original and continued vision.

Enigma already moving on, new product launched

According to a post on the firm’s blog: “We are thrilled to have the opportunity to put this process in the rearview mirror and turn back to our development work with our full attention and energy.”

Additionally, Enigma claims their focus is now on its newly launched mainnet.

Enigma’s mainnet is a proof-of-stake (PoS) blockchain that is based on the Cosmos SDK/Tendermint. It is also secured by a new native coin, Secret (SCRT), which is used for staking and transaction fees within the network. The new chain serves as the consensus layer for the Enigma network, replacing Ethereum.

ICO registration and regulation

In a similar settlement in 2019, EOS creator Block.One was ordered by the SEC to pay a civil penalty of $24 million following an unregistered ICO that raised approximately $4.1 billion.

Stephanie Avakian, Co-Director of the SEC’s Division of Enforcement, said:

“Companies that offer or sell securities to U.S. investors must comply with the securities laws, irrespective of the industry they operate in or the labels they place on the investment products they offer.”

Countries like Thailand and Malaysia have pushed for the regulation of ICOs and IEOs (initial exchange offerings), giving blockchain-based firms and startups the greenlight to legalize their crypto funding initiatives.

Interested investors in ICOs and similar crypto offerings, however, are advised to take caution, lest they are scammed by fraudulent firms.