BitClave PTE Ltd, a blockchain startup based on San Jose California has been ordered to return ICO funds it raised back in 2017.
According to a press release by the US Securities and Exchange Commission (SEC), the company will be required to return more than $25 million of investor funds. It will also return an additional $3,444,197 of prejudgment interest and $400,000 in penalties through a newly established fund dubbed Fair Fund. The fund will be operated by the SEC and the commission will undertake the distribution of the monies to affected investors.
The commission charged BitClave for conducting a sale of unregistered securities to 9,500 investors some of which were US residents. In the SEC charges, the company “emphasized its expectation that the tokens would increase in value, and took steps to make the tokens available for trading on third-party digital asset trading platforms after the ICO.”
The US Securities and Exchange Act defines such as a sale as a securities and mandates any company that wishes to sell similar assets to register the sale. BitClave PTE Ltd failed to do so.
BitClave conducted its ICO between June and November 2017 hoping to use the funds in developing a decentralized search engine that rewarded users for voluntarily sharing their data to enable targeted ads. A native token named Consumer Activity Token (CAT) was to be used to ensure the effective use of incentivizes within the system. It is the sale of the CATs that the SEC used to charge the company.
“Issuers of securities, traditional or digital, must comply with the registration requirements of the federal securities laws,” Kristina Littman, who heads the Cyber Unit of the commission’s Enforcement Division said in a statement on Thursday. “The remedies ordered by the Commission will provide meaningful relief to investors in this unregistered offering.”
BitClave serves as the latest blockchain company to fall under the SEC’s hammer following similar companies as Block.one and Enigma which settled with the commission for $24 million and $500,000 respectively. Block.one remains the record holder of the largest ICO raising $4 billion in a year-long ICO. Industry participants called the settlement with the SEC as a “slap on the wrist.”
Privacy-centric messenger Telegram also lost a case against the commission earlier this year after its second-largest ICO held back in 2017 raising about $1.7 billion. The company was forced to return 72% of investor funds, the difference having been used to develop the Telegram Open Network over the last three years.