The US top regulator has stepped in to penalize yet another “initial coin offering” (ICO) after its operators failed to register their tokens as a security. The Securities and Exchange Commission (SEC) has sued ICOBox, a provider of ICO marketing services, alleging its founder Nikolay Evdokimov has conducted an illegal $14 million securities offering of digital tokens.
The SEC says that ICOBox sold digital tokens to US investors without registering the initial coin offering (ICO), a requirement under US securities laws.
The complaint further alleges that ICOBox has served a significant number of crypto projects, which were able to collect over $650 million via initial token offerings. Some of the ICOs are still running, including names such as INS, Universa, Play2Live, Crypterium, Celsius, Storiqa, Tokenstars, and CrowdGenie.
“By ignoring the registration requirements of the federal securities laws, ICOBox and Evdokimov exposed investors to investments, which are now virtually worthless, without providing information that is critical to making informed investment decisions,” said Michele Wein Layne, Regional Director of the Los Angeles Regional Office.
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As explained in the order, the SEC determined that ICOBox amounted to selling securities without filing a registration or qualifying for a registration exemption.
ICOs catch the regulatory eye
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.
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.
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.