Sun. Aug 7th, 2022

While initial coin offerings (ICOs) may no longer be in vogue, the U.S. securities watchdog is still cracking down on them. The Securities and Exchange Commission (SEC) has reached a settlement with Enigma MPC for the blockchain startup’s 2017 ICO in which the regulator found it sold unregistered securities, ultimately raising USD 45 million from the sale of ENG tokens, according to a statement. As part of the settlement, the San Francisco and Israel-based company must “return funds to harmed investors via a claims process, register its tokens as securities, file periodic reports with the SEC, and pay a [steep] $500,000 penalty,” the statement reads.

As one Twitter follower pointed out, Enigma has a market cap of less than USD 25 million, and investors clearly are not taking the latest development well. The ENG coin is down nearly 30% at the time of publication, though the broader cryptocurrency market is trading in the red too.

Source: Twitter

Enigma has conceded to register its ENG tokens as securities and publish filings from time to time, all of which drew ire from the social media community.

John T. Dugan, Associate Director for Enforcement in the SEC’s Boston Regional Office, stated:

“All investors are entitled to receive certain information from issuers in connection with a securities offering, whether it involves more traditional assets or novel ones. The remedies in today’s order provide ICO investors with an opportunity to obtain compensation and provide investors with the information to which they are entitled as they make investment decisions.”

The Enigma team is thrilled to have the SEC probe in the rear-view mirror, saying in a blog post:

“This settlement clears the way for our development team to focus fully on our original and continued vision: building groundbreaking privacy solutions that improve the adoption and usability of decentralized technologies, for the benefit of all.”

To that end, the company has announced the successful launch of its proof-of-stake mainnet, which it says is “supported and operated by over 20 independent validators from the Enigma ecosystem and community.” The mainnet is tied to a newly launched native coin dubbed Secret (SCRT), which can be used for staking as well as to cover transaction fees on the network. With the launch of the mainnet, Enigma moves away from the Ethereum blockchain, on which it was originally built.

SEC Battles

The SEC has a page dedicated to ICOs on its website, in which it warns investors about the risks associated with token sales.

Source: SEC

In 2017, the year that Enigma held its token sale, it was boom time for ICO deals. The market raised an estimated USD 4.9 billion during that year. It’s not outside the realm of possibility that additional settlements with blockchain startups could be in the pipeline. Kik is a messaging company that has taken its fight with the SEC to the courts, after raising USD 100 million in an ICO, in what is proving to be a lengthy and costly battle. Most recently, the court decided that Kik technical advisor Tanner Philp will give a deposition.

In 2019, initial exchange offerings, IEOs, were largely thought to overtake ICOs as the prominent fundraising method.  IEOs reportedly raised USD 1.6 billion in the first half of last year across nearly 60 deals.