Skip to navigationSkip to content

Crypto companies are settling with the SEC, but that’s not stopping them

Exterior of the SEC building
AP Photo/Andrew Harnik
A heavy caseload.
  • Matthew De Silva
By Matthew De Silva

Tech reporter

Published Last updated This article is more than 2 years old.

Block.One, a blockchain development company, agreed to a $24 million settlement with the US Securities and Exchange Commission after raising $4 billion in ether during an unregistered initial coin offering (ICO). While the SEC found Block.One in violation of federal securities laws for the online crowdfunding event it hosted from June 2017 until June 2018, the company agreed to the settlement without admitting or denying the agency’s findings.

Readers may remember Block.One as the Cayman Islands-based company that raised $4 billion without a live product. The company’s vaguely futuristic marketing videos promised to upend the internet as we know it. (Even John Oliver took notice.)

Block.One’s primary product is EOS.IO, an open-source blockchain platform. To fund its development, the company sold EOS tokens on the Ethereum network. Then, the company swapped those Ethereum-based EOS tokens for digital tokens on the EOS network.

In June, Block.One unveiled its plan for Voice, a social media platform that runs on the EOS blockchain. More recently, though, the company shared its plan to invest $10 million in its US headquarters in Arlington, Virginia. Despite the SEC fine, it appears that it’s business as usual for Block.One.

Block.One’s settlement is the latest indication the SEC is determined to clear its backlog of cases stemming from the ICO boom of 2017 and 2018. So far the agency has halted outright fraudulent schemes, sought securities registrations and settlements from seemingly legitimate companies, and issued cease-and-desist orders as well as ordered compensation to investors in many other cases. Many of these cases stem from alleged violations of decades-old federal laws requiring companies issuing securities to register with the SEC (or file for exemption), which most ICOs failed to do.

“My prediction is that you will see several more settlements like this one by the end of the year, including several of the larger ICOs,” wrote Stephen Palley, an attorney who specializes in blockchain and virtual currencies, in an op-ed for The Block.

Already, Nebulous, another (albeit smaller) crypto company, said Oct. 1 it also settled with the SEC. Nebulous settled for approximately $225,000—that includes repayment of its ill-gotten gains, interest, and an $80,000 civil penalty—though its May 2014 token sale was for just $120,000.

Lest Nebulous appear downtrodden, one should remember the company still raised $3.25 million in July to fund Sia, its decentralized cloud storage platform, which it continues to develop.

In June, the SEC also filed suit against Kik, which the agency said raised $100 million in an unregistered ICO for its cryptocurrency, Kin. There likely will be more to come as the agency continues to pursue crypto-fraud cases. “Whether in digital currency or plain cash, we will act to protect investor assets and to pursue fraud and manipulation in our securities markets,” said Marc P. Berger, director of the SEC’s New York Regional Office in August.

As crypto companies face SEC scrutiny, it might be worth watching the Crypto Rating Council, a recently-launched group of blockchain industry leaders who have taken it upon themselves to provide ratings of whether projects violate US securities law. On their scale, a “1” means the project is probably safe from the SEC, whereas “5” means the project’s tokens are almost certainly securities (as defined by the Howey Test). But even the CRC’s ratings are, well, a bit optimistic.

Selected SEC-crypto cases
Oct. 2019Nebulous$120,000Settled charges for $225,000
Sept. 2019Block.One$4 billionSettled charges for $24 million
Sept. 2019Fantasy Market$63,000$15,000 civil penalty, returned funds to investors (subject to court approval)
Sept. 2019ICOBox$14 millionSEC filed lawsuit (pending)
Aug. 2019ICO RatingFailed to disclose paymentsSettled charges for $269,000
Aug. 2019Veritaseum$14.8 million+SEC freezes $8 million in assets (pending)
Aug. 2019SimplyVital Health, Inc.$6.3 millionReturned funds to investors, agreed to cease & desist
June 2019Kik$100 millionSEC filed lawsuit (pending)
Feb. 2019Gladius Network LLC$12.7 millionSelf-reported, agree to compensate investors & register tokens as securities
Nov. 2018Floyd Mayweather Jr., DJ KhaledPromotional statementsSettled touting violations through disgorgement and penalties
Nov. 2018CarrierEQ Inc. (Airfox)$15 million$250,000 penalty, agree to compensate investors, & register tokens as securities
Nov. 2018Paragon Coin Inc.$12 million$250,000 penalty, agree to compensate investors, & register tokens as securities
April 2018Centra Tech., Inc.$32 millionFounders indicted for fraud
Dec. 2017PlexCorps$15 millionFounder jailed and fined
Sept. 2017REcoin Group Foundation and DRC World$300,000Founder pleads guilty to defrauding investors
  • Filecoin prepares for launch, two years after $257 million ICO (Decrypt)
  • Executive departures roil crypto firm Blockchain (The Information)
  • LedgerX claims ‘personal animus’ drove ex-CFTC chair to stall approvals (CoinDesk)
  • Nets’ Spencer Dinwiddie can’t sell shares in his contract, NBA says (New York Times)
  • Facebook in talks for Sandberg to testify to House in October (Bloomberg)
  • Visa, Mastercard, others reconsider involvement in Facebook’s Libra network (WSJ)
  • SoFi launches crypto trading with three digital currencies (Fortune)
  • Crypto ETF advocates face SEC resistance despite strategic shift (Bloomberg)

Please send news, tips, and live products to Today’s Private Key was written by Matthew De Silva and edited by Oliver Staley. Rather fail with honor than succeed by fraud.

📬 Kick off each morning with coffee and the Daily Brief (BYO coffee).

By providing your email, you agree to the Quartz Privacy Policy.