On September 30, the U.S. Securities and Exchange Commission (the “SEC”) announced the settlement of a $24 million penalty with blockchain company Block.one, as a result of the company’s recent unregistered initial coin offering (“ICO”). In the press release, SEC officials detail the unlisted ICO, stating that the initiative, “raised the equivalent of several billion dollars over approximately one year,” between June of 2017 and 2018. According to the release, Block.one’s ICO was launched to raise capital for a variety of operations including general business expenses as well as the development and subsequent promotion of blockchain software.
Using 900 million tokens sold on the Ethereum blockchain, the ICO brought in billions of dollars from American and global investors but was not registered with the SEC nor did it meet the agency’s qualifications for exemption from registration conditions. Reports from last year estimated that the project amassed an unprecedented $4.1 billion by the end of May 2018 before the product’s full launch.1
Co-Director of the SEC’s Division of Enforcement Stephanie Avakian describes the penalty in the SEC notice as a violation of federal securities law, stating, “A number of US investors participated in Block.one’s ICO. Companies that offer or sell securities to US 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.”
In Block.one’s own press release on the fine settlement, the company notes that it neither confirms nor denies the SEC’s findings, but is committed to ensuring regulatory compliance going forward: “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.”
While the SEC notice does mention that Block.one’s ICO began before the release of its Report of Investigation on The DAO, the agency maintains that Block.one’s actions continued despite the report’s issuance. Furthermore, Steven Peikin, additional Co-Director of the SEC’s Division of Enforcement, highlights the lack of crucial information given to investors by contributing to the coin offering, “Block.one did not provide ICO investors the information they were entitled to as participants in a securities offering,” Peikin explains. “The SEC remains committed to bringing enforcement cases when investors are deprived of material information they need to make informed investment decisions.”
If you are looking to launch an ICO or are interested in securities laws for digital tokens, we encourage you to contact us.
- Rooney, Kate. “A Blockchain Start-up Just Raised $4 Billion without a Live Product.” CNBC. CNBC LLC, June 1, 2018. https://www.cnbc.com/2018/05/31/a-blockchain-start-up-just-raised-4-billion-without-a-live-product.html.