October 4, 2019
The US Securities and Exchange Commission has declared war on initial coin offerings (ICOs) and the regulator has charged several businesses with allegations of violations on different securities laws. The penalties faced by the various firms charged by the regulator have differed substantially, and this has created some confusion as to what the regulator requires of businesses that conduct ICOs.
In a move that has sent shockwaves across the crypto community, the SEC has handed down its first retroactive judgment on Nebulous Inc. over its conduct in its ICO which took place in 2014. Nebulous is the company that owns Siacoin (SC), a cryptocurrency that is used for cloud storage. The regulator has hit the firm with a $225,000 fine on top of a cease and desist order.
Siacoin’s ICO raised $120,000, and the firm behind it has been charged almost double the amount that was raised during the offering. The cease and desist order that has been given to Nebulous means that Siacoin is now officially considered a security by the regulator and it will be difficult for the crypto asset to avoid further violations of securities laws.
When another action that the SEC has taken against other firms that are accused of violating securities laws is considered, the judgment that Siacoin is facing is quite harsh. The regulator recently placed a $24 million fine on EOS, whose ICO raised close to $4 billion. The penalty imposed on EOS is less than 1% of the total raised during its ICO. Furthermore, there were no requirements imposed to register EOS as a security, and this raises more questions about the ruling against Siacoin.
Siacoin’s ICO was conducted in 2014, years before the SEC’s guidance on crypto-assets came into being. The regulator’s first guidelines on ICO’s were issued in July 2017. At that point, the regulatory body said that any crypto asset that will be offered to investors with the aim of gaining profits would be regarded as a security, and hence, these would be controlled by securities laws.
For ICOs that took place after these regulations were passed, it was quite clear that they would have to follow specific rules when they conduct their offerings. However, Siacoin’s case has created a precedent that has left several players in the crypto industry with many questions. What the Siacoin case tells us is that the SEC’s regulations about ICOs can be applied to offerings that took place before the laws themselves came into existence.
Before the SEC clearly stated its position on ICOs, there are several offerings of the sort that were conducted, and all these companies are at risk of being charged by the regulator. It also reveals the lengths that the regulatory authority is prepared to go to with regards to its fight against ICOs. If the judgment against Siacoin is a reflection of the SEC’s impending action against ICOs that were conducted even before its guidelines came into effect, several crypto businesses will soon face punishment from the regulator.
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