EOS creator Block.One has reached a settlement with the SEC for conducting an “unregistered” initial coin offering.
The ICO in question took place between June 26, 2017, and June 1, 2018, during which time the company sold ERC-20 tokens and raised approximately US$4.1 billion [AU$6.13 billion].
Under the terms of the settlement, Block.One will pay a civil penalty of $24 million without having to admit to or deny the charges.
According to the SEC’s order, Block.one used the funds raised in the ICO for “general expenses”, and “to develop software and promote blockchains based on that software.”
“A number of US investors participated in Block.one’s ICO,” said Stephanie Avakian, Co-Director of the SEC’s Division of Enforcement.
“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,” she added.
Block.One never registered its ICO, nor did it seek to qualify for an exemption from the requirements of the law.
“Block.one did not provide ICO investors the information they were entitled to as participants in a securities offering,” said Steven Peikin, Co-Director of the SEC’s Division of Enforcement.
“The SEC remains committed to bringing enforcement cases when investors are deprived of material information they need to make informed investment decisions.”
Block.One and the community respond
Following the SEC’s announcement, Block.One released its own statement on the matter.
“We are excited to resolve these discussions with the SEC and are committed to ongoing collaboration with regulators and policymakers as the world continues to develop more clarity around compliance frameworks for digital assets,” the company stated.
“We will continue to fight for the development of our industry to achieve as much alignment around policy and best practices as possible.”
Block.One noted that the settlement only applies to the ERC-20 tokens that were sold during the ICO.
“The settlement relates specifically to the ERC-20 token sold on the Ethereum blockchain during the aforementioned period, which is no longer in circulation or traded, and will not require the token to be registered as a security with the SEC. The settlement resolves all ongoing matters between Block.one and the SEC.”
News of the settlement was met little overall drama as members of the crypto community sought to put the penalty amount in perspective.
Larry Cermak, Director of Research at The Block, called the fine “ridiculous” and pointed out that Block.One paid more for social media platform Voice, which it acquired earlier this year.
To demonstrate how ridiculous this $24M fine is, EOS issuer paid $6M more on a fucking website this year. The SEC's fine was a smaller sting for them than buying https://t.co/MfhS1HUayR.
— Larry Cermak (@lawmaster) October 1, 2019
He also noted that the penalty – which amounts to just 0.6% of the total amount raised during the ICO – is little more than a slap on the wrist by the SEC.
SEC rampage continues
2019 has been a busy year for the SEC with regards to ICOs and other crypto-related businesses.
A New England-based blockchain company, SimplyVital Health, Inc. was charged by SEC, in August, for offering and selling approximately $6.3 million worth of securities in the form of a new token called Health Cash, or HLTH.
However, the company voluntarily returned all the funds raised during the pre-sale to its investors.
In that same month, SEC and ICO Rating, an ICO research and rating agency, reached a $268,998 settlement for charges against the company for not disclosing payments received by them for promoting projects.
Melissa Hodgman, Associate Director of the SEC’s Enforcement Division, discussing the importance of revealing such information, said:
“The securities laws require promoters, including both people and entities, to disclose compensation they receive for touting investments so that potential investors are aware they are viewing a paid promotional item.”
In June 2019, SEC filed a complaint against messaging mobile app Kik for an unregistered $100 million securities offering for its KIN token.
The Commission alleged that the sole purpose of the ICO, held in September 2017, was to keep the company afloat as they were losing money.
However, Kik denied SEC’s allegations, in-turn responding with a 130-page document, as an answer to the complaint.
“Our Answer demonstrates how the Commission has repeatedly twisted the facts to make its case, which it would not have done if it had strong evidence,” said CEO Ted Livingston.
As a result of the ongoing lawsuit, the company recently announced that it was shutting down its popular Kik Messenger app.
Last month, the SEC sued ICOBox and its founder Nikolay Evdokimov for an unregistered $14 million ICO, as well as unregistered broker activity.
The complaint details that the token could be used to swap them with other tokens on the platform at a discount.