SEC Coinschedule Settlement Opens up Old Crypto Securities Wounds
America’s top financial regulator, the Securities and Exchange Commission (SEC) has announced that it has settled charges against the British firm Blotics, the company behind the Coinschedule initial coin offerings (ICOs) profiling site. But some key voices within the SEC are not happy with what they perceive as a lack of transparency from the regulator.
The firm, said the SEC, had “violated the anti-touting provisions of federal securities laws” and had failed to disclose the fact that it was receiving compensation “from issuers of the digital asset securities it profiled.”
The site boomed shortly after its launch in 2016 with ICOs enjoying enormous popularity in the 2017-2018 period. Its popularity declined after the ICO “bubble” burst. However, the SEC stated that as American visitors “comprised a significant portion of its web traffic” in the period up to August 2019, Coinschedule had published “many of the profiles” after the SEC had issued a 2017 warning that the tokens “sold in ICOs may be securities” – and thus subject to America’s much-maligned securities legislation, which dates back to 1933.
The regulator claimed that listing profiles and trust scores, which marked tokens’ credibility and operational risk as factors were not based on a “proprietary algorithm,” as claimed.
The SEC wrote:
“In reality, the token issuers paid Coinschedule to profile their token offerings on Coinschedule.com, a fact that Coinschedule failed to disclose to visitors.”
Rather than contest the ruling, Blotics has agreed to “cease and desist from committing or causing any future violations of the anti-touting provisions of the federal securities laws,” and to “pay USD 43,000 in disgorgement, plus prejudgment interest and a penalty of USD 154,434.”
But in a joint public statement, the SEC commissioners Hester Pierce and Elad Roisman (neither of whom were involved in the probe into Coinschedule) hit out at the settlement, writing:
“We […] are disappointed that the commission’s settlement with Coinschedule did not explain which digital assets touted by Coinschedule were securities, an omission which is symptomatic of our reluctance to provide additional guidance about how to determine whether a token is being sold as part of a securities offering or which tokens are securities.”
The commissioners took another swipe at the thorny issue of which tokens the SEC views as securities, and which class as commodities, noting:
“There is a decided lack of clarity for market participants around the application of the securities laws to digital assets and their trading, as is evidenced by the requests each of us receives for clarity and the consistent outreach to the commission staff for no-action and other relief.”
Pierce and Roisman added that a “void” existed whereby “litigated and settled commission enforcement actions have become the go-to source of guidance.”
And the two commissioners claimed that “providing guidance piecemeal” through enforcement actions like the settlement was “not the best way to move forward.” If progress was the regulator’s ultimate goal, they added “we should at least be clear about which tokens we have identified to have been sold pursuant to securities offerings.”