SEC Slams Shopin’s $42 Million ICO With Fraud and Unregistered Securities Charges
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SEC Slams Shopin’s $42 Million ICO With Fraud and Unregistered Securities Charges

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On December 11th, 2019, the United States (U.S.) Securities and Exchange Commission (SEC) announced charges against Shopin and its founder, Eran Eyal. The charges include both fraud and an unregistered securities offering from an Initial Coin Offering (ICO) which raised more than $42 million and ended in April of 2018.


The SEC’s Charges Against Shopin’s ICO Explained

According to a recent complaint by the SEC, Eran Eyal — founder of UnitedData, dba Shopin — coducted an unregistered securities offering which raised $42.5 million. The offering took place for quite some time, starting in August 2017 and coming to a close in April 2018.

During the sale, the company sold Shopin Tokens to fund the creation of ‘universal shopper profiles’. Consumer purchase histories would be recorded on a blockchain, in order to create customer profiles which would be targeted based on the information analyzed.

Yet in addition to bypassing securities requirements, the SEC says Shopin’s ICO was blatantly fraudulent. Shopin never actually created a platform which did everything the company set out to do. In fact, no functional platform was ever established.

Instead, both Eyal and Shopin consistently lied to investors concerning its offering. The company claimed high-profile partnerships existed with popular retailers. They also claimed to have forged a partnership with a famous entrepreneur in the digital asset realm. Apparently, none of this turned out to be true.

According to the SEC’s complaint, Eyal spent at least $500,000 on personal expenses. This included rent, shopping, entertainment purposes, and even a dating service.

Marc P. Berger, Director of the SEC’s New York Regional Office said,

“As alleged in today’s action, the SEC seeks to hold Eyal and Shopin responsible for scamming innocent investors with false claims about relationships and contracts they had secured in support of a blockchain-based universal shopper profile. Retail investors considering an investment in a digital asset that meets the definition of a security must be afforded the same truthful disclosures as in any traditional securities offering.” 

The SEC’s complaint was filed in a federal district court in Manhattan, New York. Both Eyal and Shopin have been charged with violating antifraud and registration provisions per federal securities laws. The charges seek permanent injunctions, disgorgement with interest, civil penalties, and a bar which would prohibit both Eyal and Shopin from offering security tokens at any point in the future.

The SEC’s Crackdown on ICOs Explained

The SEC has shown no signs of slowing down when it comes to regulatory enforcement in the digital asset space. Over the span of a few years, Initial Coin Offerings (ICOs) raised billions of dollars to fund new companies, projects, and technology.

Yet the majority of companies that leveraged ICOs failed to abide by the appropriate securities laws and regulations. Previously, SEC Chairman Jay Clayton has stated how nearly every ICO he has seen, constitutes a securities offering — with the single exception being Ethereum.

Blockchain technology brings significant benefits when it comes to raising capital. The emerging tech can facilitate easy investor and asset management. Fractional ownership can allow for high-valued assets to be moved quickly without sellers facing liquidity premiums. Digital assets can also be traded 24/7/365, whereas many of the world’s financial markets have limited openings. Wall Street for example, is open Monday through Friday, 9:30am — 4:00pm, but is closed on nine holidays. The open-ended markets seen in the digital asset space open the door to new pools of investors and bring new levels of liquidity to their assets.

Still, those who offer the sale of an asset which meets the criteria of a regulated financial security, must follow the appropriate rules and regulations which accompany securities offerings. As ICOs failed to do this, the SEC became increasingly involved in the digital asset space.

As a result, those looking to raise capital using digital assets have transitioned from the ICO to the Security Token Offering (STO). The STO explicitly declares itself a securities offering, and therefore must be compliant with its jurisdiction-appropriate laws and regulations.

Though still nascent, the security token industry has raised almost $1 billion to date. The benefits of security tokens are so significant that they are anticipated to reform the world’s current securities structures — and potentially serve as the first real-world use-case of blockchain technology to see industry-wide adoption.

What do you think about the SEC’s charges against Shopin and its $42 million ICO? We’d like to know what you think in the comments section below.


Image courtesy of Medium.

December 12, 2019

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Tim Fries Tim Fries is the cofounder of The Tokenist. He has a B. Sc. in Mechanical Engineering from the University of Michigan, and an MBA from the University of Chicago Booth School of Business. Tim served as a Senior Associate on the investment team at RW Baird's US Private Equity division, and is also the co-founder of Protective Technologies Capital, an investment firms specializing in sensing, protection and control solutions (IoT).