The U.S. Securities and Exchange Commission has ordered crypto startup BitClave to refund the $25.5 million raised during its Initial Coin Offering (ICO) to investors. In a May 28 press release, the SEC charged BitClave with selling unregistered securities in its ICO.
The SEC claims that the money raised by BitClave through the sale of its Consumer Activity Token (CAT) in November 2017 was an unregistered security. The regulator said BitClave planned to use the ICO proceeds to develop, administer, and market a blockchain-based search platform for targeted consumer advertising.
In order to assist investors ascertain whether or not an asset is a security, the SEC published a framework in 2019. According to those guidelines, an asset can be reasonably expected to be a security when investors expect such asset to appreciate through the work conducted by others. The SEC claims CAT is a security token because BitClave emphasized its expectation that the token will increase in value.
According to the SEC, BitClave has agreed to settle the charges by refunding the proceeds from the ICO. The company also agreed to pay additional monetary relief to be distributed to investors through a Fair Fund. BitClave neither admitted nor denied the regulator’s findings. However, it agreed to pay disgorgement of $25.5 million, pre-judgement interest of about $3.44 million, together with a penalty of $400,000.
BitClave also agreed to request for the removal of its CAT tokens from crypto trading platforms. All the remaining CAT tokens in the company’s custody will be transferred to the fund administrator for permanent disabling. CAT tokens are currently only listed on the YoBit exchange, according to datafrom CoinMarketCap.
Kristina Littman, Chief of the SEC Enforcement Divisions Cyber Unit said issuers of securities, traditional or digital, must comply with the registration requirements of the federal securities laws. She added that the remedies ordered by the SEC will provide meaningful relief to investors in this illegal offering.