SEC Serves Cease and Desist Order to Russian ICO Rating Website

The United States Securities and Exchange Commission (SEC) has fined and settled charges against Russian analytics website ICO Rating in the amount of $268,998 for failure to disclose payments it received to publicize digital asset offerings of issuers it had rated, according to an announcement.

In the announcement, the US Securities and Exchange Commission disclosed that it had charged ICO Rating for violating anti-touting provisions for projects rated from December 2017 to July 2018.

Particularly, the regulator claimed that ICO Rating violated the anti-touting provisions of Section 17(b) of the Securities Act of 1933 by failing to disclose payments it received from initial coin offering (ICO) issuers it rated and published on its platform.

According to the press release, ICO Rating featured ratings of tokens that the regulator deemed to be securities on its website as well as across social media. Such as projects rated by ICO Rating during that time raised funds through particular initial coin offerings (ICOs), proper disclosures should have been made to potential investors.

Associate Director of the SEC’s Enforcement Division Mellisa Hodgman explained:

“The securities laws require promoters, including both people and entities, to disclose compensation they receive for touting investments so that potential investors are aware they are viewing a paid promotional item. […] This requirement applies regardless of whether the securities being touted are issued using traditional certificates or on the blockchain.”

Neither admitting nor denying the SEC’s findings, the Russian-based company has agreed to cease and desist from committing any future violations of these provisions. Consequently, it paid disgorgement and prejudgment interest of $106,998 and a civil penalty of $162,000, which rounds to a total of $268,998 in damages.

Meanwhile, August has proven to be a busy month for the regulatory agency. Just last week, the SEC charged New England-based SimplyVital Health for failing to register a $6.3 million Ether (ETH) pre-sale of its HLTH tokens. Without confirming or denying the allegations that it violated certain aspects of the Securities Act of 1933, the healthcare agency agreed to a cease-and-desist order imposed by the regulator.

Earlier in August, it has also been reported that the SEC reached a $7 million dollar settlement against two other ICO-based projects – PlexCorps and Reggie Middleton of Veritaseum – over an allegedly fraudulent ICO.

Blockchain Firm Settles Unregistered ICO with the SEC

SimplyVital Health, Inc. – a healthcare- based blockchain firm – has settled with the United States Securities and Exchange Commission (SEC) over an allegedly unregistered $6.3 million initial coin offering (ICO).

According to SEC, the New England-based SimplyVital Health, Inc. planned to create a healthcare-related blockchain ecosystem, dubbed Health Nexus. The firm publicly announced plans to build its platform through the sale of its Health Cash (HLTH) token in 2017. Based on the charges brought by SEC, the commission alleges that the company raised more than $6 million through a pre-sale of its token.

Notably, the pre-sale was offered under a simple agreement for future tokens (SAFTs) arrangement – a model which is designed to simplify the ICO process and reduce the risk of enforcement actions by offering investment contracts rather than tokens. Following the pre-sale, which closed in April 2018, the firm did not move forward with the planned public offering.

Respectively, SimplyVital made use of the SAFT arrangement that stipulated tokens would not be dispersed to investors until SimplyVital created its platform. However, following the pre-sale, which closed in April 2018, the firm did not move forward with the planned public offering.

Subsequently, SEC concluded that the blockchain healthcare company had violated provisions of the Securities Act of 1933 and “did not file a registration statement with the Commission or qualify for an exemption from registration before offering and selling HLTH to the public through the SAFTs.”

Following this, SimplyVital, whilst neither admitting nor denying the SEC’s charges, has agreed to comply with SEC’s cease and desist order and will face no further penalty, as the firm had already returned to investors “substantially all of the funds raised during its pre-sale” by April 19th 2019.

According to industry sources, many had reported in 2018 that the SEC was most likely going after SAFT sales. An unnamed source stated at the time:

“The SEC is targeting SAFTs. The new approach of the SEC is to consider tokens as both utility and security at the same time, meaning a token can bring utility to a platform but at the same time can be considered as a security if you sold it to parties that mainly looked for profit on its increase in value.”

After releasing its July 2017 DAO Report of Investigation, which introduced the crypto industry to the Howey Test, the SEC has efficiently followed a consistent pattern of enforcement, which has been laid out over the last two years, and picked off one ICO after another over the unregistered sale of securities.

In public statements, Chairman Jay Clayton has stated that the SEC believes virtually every ICO ever conducted in the United States has violated federal securities laws.

Most recently, it had been reported that a U.S. District Court authorized an emergency freeze to lock up $8 million raised in an ICO by a New York citizen alongside with two of his entities. Seemingly, the SEC claimed that Reginald Middleton, Veritaseum Inc. and Veritaseum LLC had raised the funds in an ICO that was a fraudulent, unregistered securities offering.

SEC Delays Three Bitcoin ETF Proposals Again

The United States Securities and Exchange Commission (SEC) announced that it delays its decision on three Bitcoin (BTC) exchange-traded fund (ETF) proposals.

The ETFs, proposed earlier in the year came from Bitwise Asset Management, VanEck/SolidX and Wilshire Phoenix, and filed with exchanges NYSE Arca and Cboe BZX. The applicants are hopeful that there will be some progress on the ETF front hoping to become the first asset manager to offer a regulated investment vehicle based on Bitcoin.

The SEC decision for listing VanEck has been delayed to October 18, while Bitwise’s proposal on NYSE Arca will know its fate on October 13. The Wilshire Phoenix’s United States Bitcoin and Treasury Investment Trust will be the most recent decision announcement on September 29. The SEC shared the same statement for each of them:

“The Commission finds it appropriate to designate a longer period within which to issue an order approving or disapproving the proposed rule change so that it has sufficient time to consider this proposed rule change.”

Exchange traded funds (ETF) are a type of security that tracks a basket of assets proportionately represented in the fund’s shares. The SEC approval is highly anticipated by the community, as this would make Bitcoin exposure for institutional investors much more accessible.

The VanEck proposal was filed in January, while Bitwise’s current application was filed in February. The Wilshire Phoenix proposal was published on July 1, 2019. Attempts for Bitcoin ETF approvals have been consistently rebuffed by the SEC over the last couple of years, the main reason being fear of market manipulation that can’t be monitored by the agency.

Today’s news marks the latest in a series of delays on a Bitcoin ETF. The SEC had previously delayed its decision on VanEck and Bitwise’s ETF applications in March, and again in May.

Following the May decision, the SEC decided to publish a set of questions, available to the public, in order to gather more information and opinions about VanEck’s proposal.

The SEC has the right to postpone its decision (usually up to 3 instances) on proposed financial products in order to gather information or further analyze a rule change that would allow the listing.

Chinese Police Investigate EtherDelta for Potential Exit-Scam

Chinese police have reportedly initiated an investigation against non-custodial token trading platform EtherDelta after being suspected of participating in an exit scam.

EtherDelta is a DEX that was founded by Zachary Coburn and it is mainly a trading platform for Ethereum tokens (ERC-20). It enables users to trade digital assets by means of an order book and Ethereum blockchain-powered smart contracts.

On Wednesday, August 7th, Dovey Wan – a Founding Partner of blockchain-focused venture investment firm Primitive Ventures, reported in a series of tweets that Chinese police are investigating an alleged exit scam involving a token listed on decentralized exchange (DEX) EtherDelta.

Wan noted through a series of tweets that the alleged exit scam, involving the sale of native exchange asset EtherDelta Token (EDT), took place after EtherDelta had been acquired by unnamed Chinese investors.

“The actual beneficiaries of EtherDelta are all Chinese after ownership transition in 2017 […] Basically [the founder] Zack Coburn sold EtherDelta to a group of Chinese who later issued exchange token $EDT and turned out to be a exit scam. Now furious investors of $EDT whistle blowed to local police the case was recently taking into official investigation process.” 

Respectively, the police was informed by the “furious investors”. Wan further added that the Chinese police shows no mercy in instances when any crypto scam involved large amount of retail capital.

In addition to that, Wan also shared a snapshot of the ownership agreement signed between Coburn and the Chinese buyers. She further alluded that the new owners bought it with the intent to use it as a front to issue their initial coin offering (ICO).

Prior to this, the exchange platform had faced legal challenges when the U.S. Securities and Exchange Commission (SEC) filed charges against EtherDelta founder Zachary Coburn for running a securities exchange without a license.

Almost all of the orders placed through EtherDelta’s platform were traded after the Commission issued its 2017 DAO Report, which concluded that certain digital assets, such as DAO tokens, were securities and that platforms that offered trading of these digital asset securities would be subject to the SEC’s requirement that exchanges register or operate pursuant to an exemption,” stated the regulator.

At that time Coburn neither admitted nor denied the charges, however consented to the order and agreed to pay $300,000 in unlawful profits plus $13,000 in prejudgment interest as well as a $75,000 penalty.

Earlier in May, crypto analytics startup Coinfirm found that over 500 of the Ether (ETH), which had been stolen from hacked New Zealand-based cryptocurrency exchange Cryptopia and were worth over $125,000 —  had been moved to EtherDelta.

Chinese Mining Company Canaan Reportedly Applies for IPO with the US SEC

Canaan Creative, one of the largest manufacturers of Bitcoin miners in China, has allegedly filed an application for a $200 million initial public offering (IPO) in the U.S.

The news was reported on July 31st via a blog posting on local social media platform – WeChat – by an official account named “IPO Zao Zhi Dao,” claiming that the company had already secretly submitted the application with the U.S. Securities and Exchange Commission (SEC).

According to people with knowledge of the matter, the Chinese manufacturer is seeking to raise $200 million through the public listing. Despite being less known in the west than its competitors such as Bitmain, Canaan is one of the three main Chinese Bitcoin mining players, the third being Yibang International.

Canaan’s first attempt to go public was during March 2018 when the Chinese manufacturer was seeking to file for a $1 billion IPO on the Hong Stock Exchange. However, the plan was later dropped by the company and the company’s Hong Kong Stock Exchange IPO application became void in November 2018.

Earlier this year, there were reports that Canaan was considering an IPO in New York, although the process was in its early stages. According to SEC’s new rules implemented in July 2017, companies in the US can make confidential filings of any size. The changes were made in an effort to encourage more IPOs. Prior to that, only smaller companies were allowed to file private applications.

In March, it was reported that the firm was considering an IPO attempt on the newly created Science and Technology (Sci-Tech) Innovation Board within the Shanghai Stock Exchange, in addition to its talks with the New York Stock Exchange and NASDAQ.

Notably, in March Canaan Creative had raised additional capital in its latest funding round, however the exact amount was not made public. The funding came from all existing backers as no new investors reportedly came on board. Following this news, this would make Canaan as the first Chinese market participant to successfully take its case to the U.S. market.

Meanwhile, Canaan is not the first Bitcoin (BTC) manufacturer to consider filing an IPO. Cryptocurrency mining giant Bitmain had earlier filed for an IPO, however failed to make a bid with the Hong Kong Stock Exchange. Following that, Bitmain was reportedly considering filing an application in the U.S. with the SEC as of the end of June. Rival mining manufacturer Yibang’s attempt at filing an IPO with the Hong Kong Stock Exchange had also met with rejection.

At the time of Bitmain’s failure in December 2018, many strongly believed that the then highly volatile nature of BTC was the reason which gave regulators cold feet. The month prior to that, mining had suffered as BTC prices plunged, leading to significant shifts as participants attempted to stay financially stable.

Six months later, the landscape had transformed, with Bitcoin seeing a dramatic reversal of fortunes across the mining industry.