The U.S. Securities and Exchange Commission (SEC) has ordered a crypto ATM operator to pay $3.9 million for selling unregistered tokens. The company, Coinschedule, claimed to offer a listing service for upcoming initial coin offerings (ICOs), but the SEC found that it was actually providing investment advice and had not registered as a broker-dealer or an investment advisor.
This case marks the first time the SEC has taken enforcement action against a company solely based on its activity in the crypto industry.
Coinschedule’s website, which is no longer accessible, advertised itself as a platform that provides information about upcoming ICOs, including a calendar and ratings system. The company charged ICO issuers a fee in order to list their offerings on the platform.
The SEC found that Coinschedule was essentially acting as a broker-dealer, as it was engaging in the buying and selling of securities. The agency also determined that Coinschedule did not disclose to investors that it had been paid to list certain ICOs, and that it had engaged in extensive promotional activity, including several interviews and press releases.
According to Kristina Littman, Chief of the SEC Enforcement Division’s Cyber Unit, “The securities law registration provisions are designed to ensure that potential investors receive important information about an issuer’s business operations and financial condition. We will continue to scrutinize the ICO market and take action against those who are in violation of the securities laws.”
Coinschedule did not admit or deny the SEC’s findings, but agreed to pay $3.9 million in disgorgement and penalties. The company also agreed to refrain from offering securities in the future.
This case highlights the need for companies operating in the crypto industry to be aware of their regulatory obligations. The SEC has been increasingly active in the crypto space, cracking down on ICOs and other activities that it deems to be in violation of securities laws.
In addition to registering as broker-dealers or investment advisors, companies offering securities must disclose important information to investors, such as the risks associated with the investment and information about the company’s financial condition.
The SEC has also issued guidance on the classification of cryptocurrencies and tokens, stating that some may be classified as securities, depending on factors such as the purpose and functionality of the token. This means that companies offering tokens may be subject to securities laws, even if they do not consider their offerings to be securities.
In light of the SEC’s increased activity in the crypto space, companies operating in this industry should seek legal counsel and ensure that they are complying with all relevant regulations. Failure to do so could result in significant penalties and damage to the company’s reputation.
The SEC’s action against Coinschedule sends a clear message to other companies operating in the crypto industry that they must comply with securities laws and regulations. As the industry continues to evolve, it is likely that the SEC will continue to monitor and enforce these laws, in order to protect investors and maintain the integrity of the market.
On April 28, 2021, the Securities and Exchange Commission (SEC) announced that it has reached a settlement agreement with a cryptocurrency ATM operator for allegedly selling unregistered tokens. The company is said to have raised roughly $3.65 million through an initial coin offering, or ICO, under the guise of a “token sale.”
According to the SEC, the company offered and sold its tokens as investment contracts, which qualified them as securities under the law. Investors were led to believe that they would profit from the tokens’ appreciation in value, based on the company’s efforts to expand its bitcoin ATM network.
By failing to register the securities or qualify for an exemption, the company violated Sections 5(a) and 5(c) of the Securities Act. Additionally, the CEO and one of the company’s officers were accused of violating Section 17(a) of the Securities Act and Section 10(b) of the Exchange Act, as well as Rule 10b-5, by making false and misleading statements and engaging in other fraudulent conduct related to the token sale.
The company and its officers neither admitted nor denied the SEC’s findings but agreed to pay a collective $3.92 million in civil penalties. They also agreed to cease and desist from violating the Securities Act and the Exchange Act.
This settlement is the latest in a series of SEC actions against ICOs and other cryptocurrency offerings. The agency has been cracking down on unregistered securities offerings and has made it clear that it will not tolerate fraudulent or deceptive practices in the cryptocurrency space.
In recent years, there has been a surge in ICOs and other cryptocurrency offerings. These offerings allow companies to raise funds by selling tokens to investors, who can then trade or use the tokens within the company’s ecosystem. However, the lack of regulation and oversight in the cryptocurrency space has led to concerns about fraud and investor protection.
The SEC has taken a proactive approach to policing the cryptocurrency market. In addition to pursuing enforcement actions, the agency has issued guidance on the application of securities laws to ICOs and has launched a new fintech division dedicated to monitoring emerging technologies and innovations in financial services.
Investors should be cautious when considering investments in cryptocurrencies or ICOs. They should do their own research and due diligence, understand the risks involved, and be aware of the potential for fraud and misconduct.
In conclusion, the SEC’s settlement with the cryptocurrency ATM operator is a clear warning to others in the industry that they must comply with securities laws and regulations. The agency’s tough stance on fraudulent practices in the cryptocurrency space underscores the importance of investor protection and the need for greater regulatory oversight in this rapidly evolving sector.