The US top regulator has stepped in to stop yet another “initial coin offering” (ICO) after its operators failed to register their tokens as a security. The principles of Gladius Network have agreed to settle charges brought by the US Securities and Exchange Commission (SEC), which found that their conduct was that of unregistered broker-dealers.
Gladius is a blockchain-powered marketplace where users can rent out their spare bandwidth and storage as well as purchase content delivery and DDoS protection services.
As explained in the order, the SEC determined that Gladius amounted to selling securities without filing a registration or qualifying for a registration exemption, although it self-reported its product to the watchdog. The company raised over $12.7 million in crypto assets.
The commission said that Gladius and its owners didn’t pay any penalties to settle the charges. They also agreed to halt the offering, review the website and marketing materials, and pay back all fees it had already collected.
“The SEC has been clear that companies must comply with the securities laws when issuing digital tokens that are securities. Today’s case shows the benefit of self-reporting and taking proactive steps to remediate unregistered offerings,” said Robert A. Cohen, Chief of the SEC’s Cyber Unit.
Legal Risk Factor Beneath Ripple’s Lawsuit from SECGo to article >>
The SEC claims that the offering ran afoul of securities laws because the vehicle being offered could be considered securities, and thus the principles should have registered with the SEC as broker-dealers.
ICOs Catch the Regulatory Eye
The regulatory status of cryptocurrency offerings generally, remains somewhat murky. However, the SEC warned that securities law might apply to some virtual tokens depending on their specific characteristics. In those cases, securities registration, disclosure and other requirements apply.
Most recently, the agency has requested the firm behind first Blockchain exchange-traded funds to put its plans to create a bitcoin ETF product on halt.
The SEC has taken enforcement actions against a dozen companies, putting their offerings on hold after issuing warnings. Further, it has frozen the assets of several cryptocurrency firms, halted ICOs and suspended trading.
Putting cryptocurrency companies and their advisers on notice, however, failed to chill the booming market. The recent clampdown comes just as major US cryptocurrency operators are racing to build the nation’s first regulated venues for tokens deemed to be securities.