The SEC recently slapped Block.one, the company behind EOS, with a $24 million penalty for not registering its Initial Coin Offering (ICO) properly as a security offering.
Almost immediately, SIA Network also announced that it had come to a settlement with the SEC over a similar issue regarding the Nebulous project, which raised around $120,000 in a token sale back in 2014. The company was fined $225,000.
These events left a lot of unanswered questions within the cryptocurrency community as to the nature of the EOS token and whether it should be considered a security, as well as the Commission’s overall stance on the matter. Moreover, people have been wondering whether it’s appropriate to fine Block.one $24 million, given that it raised more than $4 billion.
What Did Block.one Do Wrong?
Just a couple of days ago, the US Securities and Exchange Commission fined the publisher of EOS, Block.one, $24 million. The company had failed to register its year-long $4 billion token sale, EOS, as a security offering.
“This was a settlement for a civil claim, and there was no pursuit against fraudulent activity regarding the ICO,” Tomer Ravid, CEO of BloxTax, told PlowBitcoin. “In other words, the entire thing was a matter of the EOS foundation failing to register its token sale with the SEC and not seeking an exemption from registration.”
More ICOs to Follow
Whenever a company offers tokens or other securities to US residents, it has to register them with the SEC as a securities offering or file a Reg A or Reg D exemption. The registration process is fairly simple. Anyone can do so, and it’s not even necessary to involve a law firm. The SEC’s database, EDGAR, is available online to everyone. EOS did neither of these things, and that’s why it got fined.
“We are going to see more news of the kind, especially if US investors are willing to complain and demand their money back. They can claim it based on technicalities or based on fraudulent activity or lack of disclosures,” Ravid added.
Why was the Penalty so Minor?
While $24 million might sound like a huge fine, it’s actually a tiny percentage of what EOS raised during its ICO. After all, the company managed to raise more than $4 billion in its token sale, which lasted 365 days.
Ravid noted that the fine is proportional to the amount of money raised from US residents and that “we don’t know the exact numbers.” However, EOS did try to block US residents from participating in the sale.
Not the End for ICOs
“There will indeed be another ICO bubble, but this one will be a lot more mature and responsible for both the companies and the investors,” says Ravid. He thinks that the 2017 ICO bubble was not the last word for cryptocurrency token sales.
“I strongly believe that projects seeking funding using the ICO model can still do so, but they have to obey the rules. We could see a new generation of founders using initial coin offerings on a limited scale, to spread their platforms.”
However, Ravid concedes that the capital raised from future ICOs will be marginal, and they won’t replace traditional fundraising.