On December 18th 2019, the U.S. Securities and Exchange Commission (SEC) announced that it has settled charges with Blockchain of Things (BCOT). Several months after the SEC published its DAO Report, BCOT raised almost $13 million through an Initial Coin Offering (ICO), which the SEC deemed an alleged unregistered securities offering.
The SEC’s Charges Alleging BCOT’s $12 Unregistered Securities Offering
From December 2017 to April 2018, BCOT sold tokens to 69 investors, raising a total of $600,000. The offering was solicited as a ‘pre-sale’ and all 69 individuals were U.S. persons.
From January to May 2018, BCOT utilized four ‘resellers’ which exclusively sold BCOT tokens in countries outside the United States. The foreign countries were selected due to a lack of resale restrictions when reselling the BCOT tokens which were originally sold to U.S. investors, according to the SEC.
The offering, says the SEC, was a securities offering. Yet it failed to comply with the registration requirements that come along with such an offering. According to Carolyn M. Welshhans, Associate Director from the SEC’s enforcement division,
“BCOT did not provide ICO investors with the information they were entitled to receive in connection with a securities offering. We will continue to consider appropriate remedies, such as those in today’s order, to provide investors with compensation and required information and to provide companies who conducted unregistered offerings with an opportunity to move forward in compliance with the federal securities laws.”
The SEC announced Wednesday that it has settled charges with BCOT. The terms of agreement include a $250,000 penalty, a cease and desist which prevents BCOT from committing any further violations of registration requirements per federal securities laws, and refunding investors. In accepting the terms of the settlement, BCOT neither affirmed nor denied the allegations.
Any investors who purchased tokens during the ICO and request a return must be refunded. BCOT is obligated to make an effort in notifying investors both on an individual basis and through its website with instructions for filing a claim.
BCOT intended to develop a platform where third-party developers could build applications for blockchain-based assets. According to the company’s whitepaper, functions of the platform were said to be digital asset generation and transfer.
The SEC, Unregistered Securities Offerings, and ICOs
BCOT’s ICO came several months after the SEC’s DAO report — which was made publicly available in July of 2019. The DAO warned that ICOs were dangerously similar to securities offerings, and was largely considered a warning to the industry.
BCOT went on to ignore such a warning, raising nearly $13 million. Tokens were distributed in March 2019, more than 1.5 years after the DAO.
SEC Chairman Jay Clayton has said himself that nearly every ICO he has seen, is constitutive of a securities offering. Yet many companies continued to launch ICOs, even after the DAO was published.
The SEC has shown increased enforcement in the digital asset realm, without any signs of slowing down. Earlier this month, the SEC charged Shopin’s $42M ICO as an unregistered securities offering. The commission even halted Telegram’s high-profile ICO, which previously raised nearly $2 billion.
Out of a concern for regulatory compliance, companies are now leaving the ICO behind and turning to the Security Token Offering (STO) as a viable alternative. The STO incorporates the benefits of Distributed Ledger Technology (DLT) while acknowledging that it is indeed a securities offering. It therefore must feature regulatory compliance with its appropriate securities regulator.
What do you think about Blockchain of Thing’s settlement with the SEC? We want to know what you think in the comments section below.
Image courtesy of the SEC.