On Sept. 30, the United States Securities and Exchange Commission (SEC) announced that it had reached a civil settlement with EOS parent company Block.One following an investigation into violations of the SEC’s security offering regulations.
The decision has sparked a new conversation around blockchain, and whether the sector’s apparent flaunting of regulations is brashness or simply the fact that in the worst of cases, the SEC’s teeth aren’t as sharp as initially assumed.
On the surface, a $24 million settlement is a large and eye-popping number. However, the deal’s toughness begins to unravel when considering its broader context, as the sum represents relative pennies when considering the total that Block.One was able to raise via its initial coin offering (ICO).
Moreover, it exonerates the company from having to accept blame or guilt for any of the SEC’s accusations. But is this a sign for more to come? Will the SEC become more proactive about enforcing security regulations toward crypto companies conducting initial coin or exchange offerings? Marc Boiron, a blockchain and securities attorney at Fisher Broyles, told Cointelegraph:
“Proactive crypto enforcement will countinue from the SEC and other regulators. I expect the number of settlements and cases to continue to increase. Many people are not aware of all of SEC investigations taking place in private, which will generally result in public announcements regarding settlements or court cases filed as the SEC works through those investigations.”
More than just a referendum on EOS and Block.One, however, the SEC’s settlement is arguably setting a poor precedent for regulation in the industry. Despite its tougher stance on the industry’s coin offerings and its declaration of tokens as securities, the SEC has missed a golden opportunity to follow its words with actions, to the delight of the crypto firms. Tomer Ravid, founder and CEO of BloxTax, told Cointelegraph:
“I believe that we will see future enforcement by the SEC regarding past actions by companies in the cryptocurrency space. At the end of the day, many of the ICO performed by companies were, in fact, the offering of securities. Regardless of the nature of the tokens offered the process of selling or offering these tokens is in many cases a security offering and needs to comply with all the legal requirements.”
Block.One’s lucky settlement
Block.One’s EOS has been one of the darlings of the blockchain industry. The project, which created a business-oriented blockchain, has long been one of the most hyped platforms to emerge in the past few years. With an ICO that stretched out for over a year, the company managed to raise over $4 billion, making it one of the most successful blockchain offerings ever held. However, its timing was unfortunately off, with the SEC publishing its initial report on the DAO incident shortly following the launch of EOS’s ICO.
The timing of the report meant that for a large portion of 2018, Block.One continued its ICO in the same manner it had before the release. An issue arose when the sale conflicted with SEC’s conclusions drawn from the DAO report — specifically, the assertion that blockchain and distributed-ledger tokens are considered securities.
Therefore, any ICO or similar securities offering must register with the SEC or seek out a waiver to move forward. Per the SEC, Block.One did neither for an entire year following the report’s publishing. On this, Boiron noted to Cointelegraph:
“Some portion of the ICO started before the DAO Report, which the SEC uses as a gauge for the time when people should have been on alert that an ICO could violate securities laws. I also think that people who are concerned that the small settlement payment will incentivize bad behavior are ignoring the fact that at any
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