Quantstamp Fined $3.5M for Unregistered ICO: SEC
• Quantstamp, a blockchain security company, has agreed to pay ~$3.5 million in fines to settle charges from the U.S. Securities and Exchange Commission (SEC).
• The SEC charged Quantstamp with conducting an unregistered initial coin offering (ICO) of its QSP tokens in late 2017.
• A successful crackdown from the agency against a crypto company for violating securities laws, industry leaders say lack clarity regarding how they apply to digital assets.
Quantstamp Agrees to Pay $3.5 Million Fine Following SEC Charges
Blockchain security company Quantstamp has agreed to pay ~$3.5 million in fines to settle charges against it from the U.S. Securities and Exchange Commission (SEC) on Friday – without confirming or denying allegations.
What is the SEC Charging?
The SEC’s charges – announced on Friday – accused Quantstamp of conducting an “unregistered initial coin offering (ICO)” in the form of its QSP tokens in late 2017.
QSP allows investors to purchase automated smart contract scans through Quantstamp’s protocol.
However, the SEC claimed that the manner in which it was first distributed constituted a securities offering.
„Quantstamp raised over $28 million by selling “QSP” tokens to approximately 5,000 investors, including investors in the United States,“ wrote the commission.
„Quantstamp planned to use the ICO proceeds to develop and market an automated smart contract security auditing platform.“
Howey Test as Guidance
When determining whether a token is a security, the SEC regularly cites the Howey Test – a decades-old legal precedent for identifying investment contracts.
The test is widely understood to contain four prongs, two of which include: 1) Investment of money; and 2) An expectation of profits solely from efforts of another party.
If both these conditions are met then it can be considered an investment contract and thus must follow all applicable securities regulations if sold within US borders or by US citizens abroad.
Implications for Crypto Industry
The settlement marks another successful crackdown from the agency against a crypto company for violating securities laws, which industry leaders say lack clarity regarding how they apply to digital assets.
With this latest enforcement action comes yet another reminder that companies looking to raise capital through token sale offerings should take necessary steps ensure compliance with applicable federal securities laws before such offerings commence.
It also further underscores that companies must be cognizant when marketing their products on social media platforms like Twitter and YouTube as well as other avenues where potential customers may reside..
Given all these factors into consideration one could conclude that despite current regulatory uncertainty surrounding cryptocurrencies there is some hope for cryptocurrency companies looking towards compliance with new legislation coming down soon enough. P >< P >This case serves as yet another reminder that any cryptocurrency related activity should be done responsibly and with full knowledge of existing laws governing investment activities so as not run afoul of them inadvertently or otherwise . P