When it’s amateur hour at a blockchain startup, the results can be disastrous.
Breaking news today shows that the SEC fined a New York startup, Blockchain of Things Inc. (BCOT), the princely sum of a quarter million dollars, while requiring the firm to return $13 million associated with an ICO that the agency says was not done properly.
“(SEC investigation) found that BCOT sold its digital tokens to U.S. investors and engaged four ‘resellers’ to serve as the exclusive sellers of BCOT’s digital tokens in certain foreign countries without restrictions on resale of those tokens to U.S. investors,” reads an SEC press release yesterday announcing the settled charges. “(It) further found that BCOT did not register its ICO pursuant to the federal securities laws, nor did it qualify for an exemption from the registration requirements.”
A simple way to explain the context here is that the SEC is having a hard time getting its head around blockchain regulation, and so it is proceeding very carefully. Perhaps in this case, the burden rests on the company which seems to have pretty clearly flouted the ICO rules – but in addition, stakeholders can expect the SEC to be particularly vigilant in the blockchain world. There’s a lot of scrutiny for firms engaged in crypto projects, especially an ICO. In fact, many experts have pontificated on the perceived “death” of the ICO as a driver.
A Cointeelgraph article filed today by Joeri Cant notes some of the consequences for individuals accused of a fraudulent ICO, but even lapses in paperwork or more innocent errors, as we see in the BCOT case, can trigger large fines and penalties.
“The order requires BCOT to cease and desist from committing or causing any violations of the registration provisions of the federal securities laws, and imposes a $250,000 penalty,” reports the SEC. “Pursuant to the order, BCOT undertakes to return funds to those investors who purchased tokens in the ICO and request a return of the funds. The company also will register its tokens as securities pursuant to the Securities Exchange Act of 1934 and will file required periodic reports with the Commission. BCOT consented to the order without admitting or denying the findings.”
The lesson, for those who are trying to move in this sector, is that you should take all of the precautions and due diligence that apply to a regular initial public offering in the equity market, and double them for a cryptocurrency ICO.
For more evidence of the SEC’s slow-walking of crypto approvals, just look at the lack of any Bitcoin ETF on the market. Many applicants have come forward, cap in hand, only to be rejected by a commission that simply can’t make its mind up about regulation. At times, the SEC has indicated they’re close to greenlighting a bitcoin ETF, but so far none has materialized.
Take all of this into account in your crypto portfolio management and tread carefully.
