Shearman & Sterling | Fintech 2020 | SEC Settles Unregistered ICO without Penalty after Company Self-Reported to SEC
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  • SEC Settles Unregistered ICO without Penalty after Company Self-Reported to SEC
    On Feb 20, 2019, the Securities and Exchange Commission (SEC) charged a company with conducting an unregistered initial coin offering (ICO), which the company self-reported to the SEC.  Because the company self-reported the conduct, agreed to compensate investors and will register the tokens, the SEC did not impose a penalty.

    In late 2017, the company conducted an unregistered initial coin offering, raising $12.7 million in digital assets to finance a planned network for renting spare computer bandwidth.  However, the company did not register its ICO (which was offered following the publication of the SEC’s DAO Report) under federal securities laws and the ICO failed to qualify for an exemption from registration requirements.  The company later self-reported to the SEC’s Enforcement staff in the summer of 2018 and expressed an interest in taking remedial steps and cooperated with the investigation.  As a result, no penalty was imposed.  Robert A. Cohen, Chief of the SEC’s Cyber Unit said that “today’s case shows the benefits of self-reporting and taking proactive steps to remediate unregistered offerings.”   This case is in contrast to the SEC’s two recent ICO registration cases in which the SEC, in addition to requiring similar undertakings, imposed penalties on companies for similar registration violations.

    Pursuant to the order, the company will return funds to the investors who purchased tokens in the ICO and request a return of funds, register its tokens as securities, and file required periodic reports. The company consented to the order without admitting or denying the findings.