The United States Securities and Exchange Commission (SEC) has taken action against blockchain security firm Quantstamp over its unregistered Initial Coin Offering (ICO) held in 2017, which raised a staggering $28 million. The legal encounter has led to a settlement, mandating investor refunds and ceasing future operations of certain business aspects.
Quantstamp’s Unregistered ICO
In the final quarter of 2017, Quantstamp hosted an ICO where it sold its native QSP tokens to approximately 5,000 investors. The company intended to use the funds generated from this ICO to advance the development and marketing of its automated smart contract security auditing platform. The ICO resulted in the collection of over $28 million.
SEC’s Legal Action
The SEC maintains that these QSP tokens qualify as securities, thus their sale and offering should have been registered, in accordance with federal laws. The failure to do so led to a violation, triggering the SEC’s legal intervention. According to the SEC’s charges, “Quantstamp offered and sold the QSP tokens as investment contracts, and therefore securities.”
Settlement and Penalties
Following the SEC’s charges, Quantstamp has agreed to a cease-and-desist order and is required to pay a total of $3.47 million. This includes $1.98 million in disgorgement, $494,314 in prejudgment interest, and a civil penalty of $1 million.
Investor Refunds and Fair Fund
As a result of the legal proceedings, the SEC has stipulated the creation of a Fair Fund to reimburse aggrieved investors. As part of its agreement with the SEC, Quantstamp will transfer its QSP token holdings to the Fair Fund’s administrator. These tokens will subsequently be “permanently disabled or destroyed.”
Conclusion
The Quantstamp case underscores the SEC’s continued vigilance in monitoring the blockchain and cryptocurrency sector. Companies intending to host ICOs should ensure full compliance with securities regulations to avoid punitive actions.
