The U.S. Securities and Exchange Commission (SEC) has imposed a fine of approximately $4 million on Coinme and charged a few other defendants related to the case for engaging in an unregistered and fraudulent marketing of a cryptocurrency asset called UpToken.
According to the SEC, Coinme’s Up Global division and Neil Bergquist, who oversaw both companies, deceived investors in a 2017 Initial Coin Offering (ICO) for an Ethereum-based UpToken. Investors were allegedly persuaded to believe that Up Global would set a hard cap on the total supply of UpToken, while Coinme would generate consistent demand for the token “to fund a Bitcoin automated teller machine” incentives program, which would thereby boost the price of the token.
Settlement and charges against Coinme and defendants
Coinme and Up Global will pay a combined $3.77 million, while Bergquist will pay $150,000. However, neither party has admitted nor denied any misconduct in connection with this matter. Bergquist, the 35-year-old crypto entrepreneur, was also given a prohibition against serving as an officer or director of public enterprises for a period of three years. The SEC report stated that Up Global and Bergquist had lied to investors by stating that the offering had raised $10 million to $19 million when in reality, they had raised far less money, roughly close to $3.65 million.
According to the SEC, UpToken was offered and sold as investment contracts and, therefore, securities under SEC guidelines. An UpToken investor would have had a reasonable expectation of obtaining a future profit from the rise in value of UpToken based upon Respondents’ efforts.
The incident comes on the heels of rampant crypto crackdowns, which many businesses operating in the country have witnessed in recent times. As of late, the financial regulator has been making a concentrated effort to address what it sees as a lack of compliance on the side of cryptocurrency platforms and the intermediaries that work with them.
SEC’s crackdown on non-compliant crypto firms
The SEC has been aggressively targeting non-compliant crypto firms in recent years. In 2017, the agency issued a report concluding that some digital assets, including those sold in ICOs, were securities and therefore subject to federal securities laws. Since then, the SEC has brought numerous enforcement actions against crypto firms for failing to register their ICOs or for engaging in fraudulent activity. The agency has also issued numerous warnings to investors about the risks of investing in cryptocurrency.
Impact of SEC’s actions on the cryptocurrency market
The crackdown on non-compliant crypto firms is part of a broader effort by U.S. regulators to bring the fast-growing digital asset market under control. The U.S. Treasury Department has also been taking a close look at the cryptocurrency market, and in 2020, it proposed new regulations that would require cryptocurrency exchanges to verify the identities of their customers. The proposed regulations would also require exchanges to report certain transactions to the government.
The SEC’s actions against non-compliant crypto firms have had a significant impact on the cryptocurrency market. Many crypto firms have been forced to close or modify their operations in response to regulatory pressure. Some analysts believe that the crackdown on non-compliant crypto firms has helped to improve the reputation of the cryptocurrency industry by weeding out bad actors and increasing investor confidence.
However, others argue that the regulatory environment in the U.S. is too hostile to cryptocurrency and that it is stifling innovation in the industry. Some crypto advocates have called for more clarity and consistency in regulatory guidelines to help businesses operate more effectively and to protect investors from fraud and other abuses.
The SEC’s fine on Coinme for fraudulent marketing of UpToken is another example of the regulatory body’s efforts to crack down on non-compliance in the cryptocurrency industry. The settlement sends a clear message to other companies operating in the space that they must adhere to SEC guidelines or face significant penalties. As the cryptocurrency market continues to evolve, it is likely that we will see more regulatory scrutiny and enforcement actions in the future.