The SEC has settled charges against blockchain technology company Block.one, which will pay a $24 million penalty for conducting an unregistered initial coin offering (ICO).
Block.one is a technology company that was established in 2016 to develop EOSIO software, an operating system designed to support public or private blockchains. The goal of the EOSIO software is to increase blockchain transaction speeds, reduce transaction costs, and improve scalability.
According to the SEC’s order, Block.one conducted an ICO between June 2017 and June 2018, and said it would use the capital raised for general expenses, to develop the EOSIO software, and promote blockchains based on the software.
Block.one’s offer and sale of 900 million tokens, known as ERC-20 tokens, eventually raised several billion dollars worth of digital assets globally, and included investors from the US. However, according to the SEC, Block.one did not register its ICO as a securities offering pursuant to the federal securities laws, nor did it qualify for or seek an exemption from the registration requirements.
“A number of US investors participated in Block.one’s ICO,” Stephanie Avakian, co-director of the SEC’s Division of Enforcement, said in a release. “Companies that offer or sell securities to US investors must comply with the securities laws, irrespective of the industry they operate in or the labels they place on the investment products they offer.”
The SEC’s order said that Block.one sold and distributed tokens directly through the EOS.IO website in exchange for Ethereum tokens. The website included measures to block US-based purchasers from buying tokens, including blocking US-based IP addresses from accessing the website’s token sale page. Block.one also required all token purchasers to agree to a token purchase agreement, which included provisions that US citizens were prohibited from purchasing the tokens, and that any purchase by a US person was unlawful and would render the purchase agreement null and void.
“Block.one did not, however, ascertain from purchasers whether they were in fact US-based persons,” said the order, “and a number of US-based persons purchased ERC-20 tokens directly through the EOS.IO website.”
Block.one also promoted the ICO in the US via social media and forum posts, and participated in blockchain conferences in the US. The SEC said Block.one failed to provide ICO investors the information they were entitled to as participants in a securities offering. Block.one consented to the SEC’s order without admitting or denying its findings.