Sun. Aug 7th, 2022

New York-based cryptocurrency startup Blockchain of Things (BCOT) has reached a settlement with the U.S. Securities and Exchange Commission (SEC) for conducting an unregistered ICO. During the height of the ICO boom in 2017 and into 2018, Blockchain of Things attracted $13 million to its coffers in a token sale, funds that it will now offer to return to investors who file a claim as part of the SEC settlement. The startup will also pay a hefty fine of $250,000 without admitting or denying the accusations lodged against it. According to SEC enforcement official Carolyn M. Welshhans,

“BCOT did not provide ICO investors with the information they were entitled to receive in connection with a securities offering. We will continue to consider appropriate remedies, such as those in today’s order, to provide investors with compensation and required information and to provide companies who conducted unregistered offerings with an opportunity to move forward in compliance with the federal securities laws.”

Source: Twitter

Of the $13 million that BCOT raised, only $600,000 originated from US investors, with the balance coming from overseas. It’s a wake-up call for other projects that cross-border deals are not immune to the SEC’s cross-hairs, as pointed out by The Wall Street Journal.

The amount of money that Blockchain of Things must return to investors hinges on the number of deal participants who request refunds. The token sale occurred during the ICO heyday in which it was commonplace for crypto investors to acquire inexpensive tokens in hopes of finding the next bitcoin (BTC). The ICO craze has since evaporated, due largely to a one-two punch of regulatory ambiguity and an SEC crackdown on tokens that the SEC decides to classify as a security.

One startup that has been fighting the SEC is Kik Interactive over its Kin cryptocurrency, which US regulators accused of doing an illegal token sale in which it raised $100 million. The SEC claims Kik didn’t register its tokens as securities laws command. Kik is battling the SEC in court. Kik and Kin Founder and CEO Ted Livingston recently explained:

“Becoming a security would kill the usability of any cryptocurrency and set a dangerous precedent for the industry. So with the SEC working to characterize almost all cryptocurrencies as securities we made the decision to step forward and fight.”

The battle with the SEC has cost the Kik/Kin ecosystem layoffs, while the Kik app was salvaged when it was acquired by holding company MediaLab.

IEOs, the New ICOs

Blockchain startups continue to raise funds but are increasingly turning to Initial Exchange Offerings (IEOs) instead. In the case of IEOs, crypto exchanges are responsible for vetting the projects that they support, which means the pipeline of deals has slowed considerably of late. In turn, the exchanges receive a cut of the token sale and may get a boost to their native cryptocurrency. For instance, crypto exchange Binance tends to use its native cryptocurrency, BNB Coin (BNB), as an on-ramp for tokens on Binance LaunchPad.

According to the latest available data, crypto companies raised $518 million via IEOs through the first five months of 2019, as per TradeBlock data cited in The Wall Street Journal.