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SEC Fines Creator of Crypto Asset EOS for Running Unregistered Token Sale

October 01, 2019

The U.S. Securities and Exchange Commission has fined Block.one, the issuer of EOS, $24 million for conducting an unregistered initial coin offering (ICO) in 2017 and 2018.

The SEC says it has settled the civic penalty with the company. As part of the settlement , Block.one won’t admit to or deny the SEC’s findings.

Says Stephanie Avakian, co-director of the SEC’s Division of Enforcement,

“A number of US investors participated in Block.one’s ICO.

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.”

Block.one’s ICO, which raised $4 billion, launched shortly before the SEC released a statement on its investigation of the DAO, an unincorporated organization that holds a token sale. It stated that token sales are subject to federal securities regulations.

After the SEC made that announcement, Block.one continued its ICO for nearly a year without registering it as a securities offering or seeking an exemption from the requirements.

Says Block.one,

“The settlement relates specifically to the ERC-20 token sold on the Ethereum blockchain during the aforementioned period, which is no longer in circulation or traded, and will not require the token to be registered as a security with the SEC. The settlement resolves all ongoing matters between Block.one and the SEC.

The SEC has simultaneously granted Block.one an important waiver so that Block.one will not be subject to certain ongoing restrictions that would usually apply with settlements of this type. Block.one believes the SEC’s granting of this waiver evidences Block.one’s continuing commitment to compliance and best practices in the United States and globally.”

According to Block.one’s letter to the SEC, the Commission found that the company was not engaged in fraud or criminal activity.

“The Proposed Order describes activities that involve the offer and sale of a security, but do not involve a criminal conviction or a violation of any antifraud statutes – scienter or nonscienter based. Thus, Block.one will not be held to a ‘greater’ burden under the Division’s waiver policy.”

Steven Peikin, co-director of the SEC’s Division of Enforcement, notes that Block.one failed to provide enough information to investors.

“Block.one did not provide ICO investors the information they were entitled to as participants in a securities offering. The SEC remains committed to bringing enforcement cases when investors are deprived of material information they need to make informed investment decisions.” 

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