SEC Fines “ICO Superstore” Operators After Registration Concerns Raised

A Michigan-based startup selling digital tokens to investors to raise capital for the self-described “ICO Superstore,” and its principles, have agreed to settle charges brought by the U.S. Securities and Exchange Commission (SEC), which found its conduct constituted acting as unregistered broker-dealers.

A communiqué on the matter issued by the Commission, which said that TokenLot LLC and its owners, Lenny Kugel and Eli L. Lewitt, agreed to pay more than $550,000 to settle charges, but without admitting or denying the SEC’s findings. They also received a lifetime officer-director bar, lifetime penny stock bar and an injunction prohibiting them from violating the federal securities laws.

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The company raised an undisclosed amount of funds from more than 6,100 retail investors to finance the development of its blockchain-based platform that facilitates purchases of ICOs tokens. TokenLot claims it enables users to do all of their ICO due diligence and purchasing through one consolidated service.

According to the SEC’s order, the offering ran afoul of securities laws because the tokens being offered could be considered securities, and that their activities required to be registered with the SEC as broker-dealers, but they were not.

The regulatory status of ICOs,and cryptocurrency offerings generally, remains somewhat murky. However, the SEC warned that some virtual tokens may come under securities law, depending on the specific details of the offering. In those cases, securities registration, disclosure and other requirements apply.

According to Stephanie Avakian, Co-Director of the SEC’s Enforcement Division, the regulator encourages “those developing digital asset trading businesses to contact the SEC staff at [email protected] for assistance in analyzing registration and other securities law requirements.”

Actions to rein in the red-hot sector

The SEC has repeatedly warned investors against throwing money into the crowdsale because the company intended to launch a cryptocurrency-based ‎investment scheme without even attempting to follow US securities laws.‎ The watchdog is worried that in many cases, retail investors aren’t adequately told about the risks involved in the cryptocurrency investment products.

The US regulators have taken enforcement actions, too, with a dozen companies having put their offerings on hold after the SEC issued warnings. Further, the agency froze assets of several cryptocurrency firms, halted ICOs and suspended trading in companies that claimed cryptocurrency or blockchain dealings.

Most recently, the SEC has rejected another attempt by Cameron and Tyler Winklevoss, founders of the Gemini cryptocurrency exchange, to list shares of what would have been the world’s first Bitcoin exchange-traded fund (ETF).

Earlier in May, the SEC’s Office of Investor Education and Advocacy (OIEA) created a ‎bogus ‎initial coin offering (ICO) website that shows how ‘too good to be’ ‎true ‎investment opportunity in cryptocurrency would look like.

Putting cryptocurrency companies and their advisers on notice, however, failed to chill the booming market. The recent clampdown comes just as titans of U.S. cryptocurrency operators are in a race to build the nation’s first regulated venues for tokens deemed to be securities.