The US Securities and Exchange Commission (SEC) is increasingly making claims against cryptocurrency projects that have raised funds from private investors without a special license. The main accusation is the assumption that the funds were raised in violation of the US Securities Act.
The Commission takes the position that companies must comply with securities laws, regardless of the industry they operate in or what their investment products are called. The SEC considers all such cases if US citizens have invested in the project.
The process of raising funds for the development of the project, aka ICO, takes place through the initial sale of digital tokens. An analogue of an ICO in the traditional securities market is an IPO – the first public sale of a company’s shares in order to raise funds for business expansion. The first ICO in 2013 was proposed by J.R. Willett, then his Mastercoin project successfully raised about 5 thousand bitcoins ($500 thousand at that time).
The US Securities and Exchange Commission is now investigating whether the Binance crypto exchange violated securities laws during the initial sale of its own Binance Coin tokens in 2017.
The regulator has repeatedly clashed with the largest blockchain companies. We talk about the most high-profile litigation.
The commission filed charges against Ripple at the end of 2020. The regulator accused the company of selling unregistered securities under the guise of XRP tokens worth $1.3 billion. The head of Ripple, Brad Garlinghouse, called the SEC accusations “unproven” and stated that the regulator’s actions are “a challenge to the entire US crypto industry.”
The litigation has been going on for several years. Throughout the process, Ripple argued that there was little to no regulatory guidance to determine exactly how cryptocurrencies were regulated as securities. Ripple requested documents from the SEC detailing the relevant policy, but the SEC refused to release them, saying that they reflect the personal opinion of its employees.
In January 2022, the court ruled that the SEC is required to add these documents to the case, but has the right to edit them. Earlier, Ripple management predicted that the litigation with the US Securities and Exchange Commission would end in 2022.
In January 2018, Telegram announced that it was preparing to hold an ICO to raise funds to launch its own blockchain platform and Gram cryptocurrency. The first round raised $850 million, after which information appeared on the network that future Gram holders were already reselling the rights to them on the secondary market. Later, this will become one of the reasons for the SEC ban on issuing an altcoin. The second round also brought in $850 million.
In October 2019, the SEC accused Telegram of illegal actions to raise $1.7 billion. The company was accused of violating securities law and demanded an indefinite injunction against the project and a decision to return funds to investors with a fine and interest.
In June 2020, the SEC imposed a fine of $18.5 million and demanded the return of more than $1.22 billion to ICO investors. Telegram is also required to inform the regulator if it plans to issue any blockchain-based cryptocurrency within the next three years. The founder of the company, Pavel Durov, announced the termination of work on the Telegram Open Network blockchain platform in May 2020. The businessman named the “paradoxical” decision of the American court as the main reason.
In October 2019, the US Securities and Exchange Commission (SEC) fined Block.one, the developer of the EOSIO blockchain, $24 million for an unregistered ICO. According to the financial regulator, the firm violated federal securities laws and did not apply for exemption from registration requirements.
Block.one did not admit or dispute its guilt, but agreed to pay the fine. The offer and sale of 900 million EOS tokens by the company raised more than $4 billion worth of digital assets, including from US investors.
In December 2020, the US Securities and Exchange Commission ruled that the Tiereon startup must immediately stop trading in TNT tokens issued on the Ethereum blockchain, pay a $250,000 fine, and return $25 million to ICO participants. The sale of TNT tokens was made in the summer of 2017. The campaign to attract funding was completed in a day. The financial regulator claims that the TNT cryptocurrency falls under the definition of securities. Thus, the startup was accused of raising funds in violation of the US securities law. The leaders of the blockchain project did not admit guilt, but did not deny it either.
In May 2020, the SEC announced penalties against BitClave projects. California startup BitClave was supposed to return $25.5 million to ICO investors raised during the initial offering of tokens in 2017. The commission accused the project of unregistered sale of valuable.