Blockchain of Things, Inc. Reaches Settlement With SEC Over Unregistered Initial Coin Offering, Must Pay $250,000 Fine
December 19, 2019 – The U.S. Securities and Exchange Commission and Blockchain of Things, Inc. (BCOT) have agreed to a settlement over BCOT’s unregistered offering and sale of digital tokens.[1]
BCOT’s offering was an “Initial Coin Offering” or “ICO,” which the SEC has described as a fundraising event in which an entity offers participants a unique digital asset – often described as a “coin” or “token” – in exchange for consideration (most commonly Bitcoin, Ether, U.S. dollars, or other fiat currency).
As explained in the SEC’s Order Instituting Cease-and-Desist Proceedings, BCOT is a technology company established to develop and implement blockchain technology, specifically by providing a platform, or web services layer, designed to improve upon existing blockchain technology. From December 2017 through July 2018, BCOT offered and sold digital tokens to raise capital to develop and implement its business plan.
Between December 2017 and June 2018, BCOT raised nearly $13 million from investors in the United States and Asia during its “Pre-Sale” and “Public Sale.”
Between December 2017 and April 2018, BCOT raised over $600,000 via general solicitation efforts, selling BCOT digital tokens to 69 U.S. persons during its “Pre-Sale.”
Between January and May 2018, BCOT’s foreign resellers raised more than $12 million in BCOT digital token sales, selling tokens to more than1,380 individuals.
BCOT’s Public Sale raised an additional $1,875 USD from two purchasers who paid in Bitcoin and located in South Korea.
In total, BCOT raised approximately $13 million USD from approximately1,380 individuals through the combined efforts of its digital token offering. BCOT distributed its tokens on March 13-15, 2019.
Following an investigation, the SEC determined BCOT’s digital tokens were securities, pursuant to SEC v. W. J. Howey Co., 328 U.S. 293 (1946), and the cases discussed by the SEC in the DAO Report. The SEC concluded that BCOT violated the Securities Act by offering and selling securities without having a registration statement filed or in effect with the SEC or qualifying for exemption from registration.
More specifically, the SEC found BCOT violated Section 5(a) of the Securities Act, which states that unless a registration statement is in effect as to a security, it shall be unlawful for any person, directly or indirectly, to make use of any means or instruments of transportation or communication in interstate commerce or of the mails to sell such security through the use or medium of any prospectus or otherwise; or to carry or cause to be carried through the mails or in interstate commerce, by any means or instruments of transportation, any such security for the purpose of sale or for delivery after sale.
BCOT also violated Section 5(c) of the Securities Act, which states that it shall be unlawful for any person, directly or indirectly, to make use of any means or instruments of transportation or communication in interstate commerce or of the mails to offer to sell or offer to buy through the use or medium of any prospectus or otherwise any security, unless a registration statement has been filed as to such security.
Penalties
The SEC’s Order requires BCOT to cease and desist from committing or causing any violations and any future violations of Section 5(a) and (c) of the Securities Act. BCOT also must comply with the following remedial penalties:
Within 14 days from the date of the Order, BCOT must issue a press release notifying the public of the settlement Order and containing a link to the Order.
Within 120 days of the date of the Order, BCOT must file a Form 10 to register its digital tokens as a class of securities.
BCOT must make timely filings of all reports required after registering its digital tokens.
BCOT must respond promptly and in good faith to any and all comments concerning the 1934 Act Registration issued by the SEC’s Division of Corporation Finance.
After registering its digital tokens, BCOT must distribute a notice and a claim form informing all persons and entities that purchased BCOT’s digital tokens of their potential claims under Section 12(a) of the Securities Act, including the right to sue “to recover the consideration paid for such security with interest thereon, less the amount of any income received thereon, upon the tender of such security, or for damages if the purchaser no longer owns the security” and informing purchasers that they may submit a written claim directly to BCOT prior to a date certain.
BCOT must post the claim form on its company website and maintain it there until the claim form deadline.
BCOT must pay a civil monetary penalty in the amount of $250,000.00 to the SEC for transfer to the general fund of the United States Treasury. BCOT must make payments pursuant to the following schedule: $62,500 within 30 days of entry of the Order; $62,500 within 60 days of entry of the Order; $62,500 within 90 days of entry of the Order; and the remainder within 120 days of the Order. If timely payment is not made, additional interest will accrue pursuant to 31 U.S.C. §3717.
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[1] In the Matter of Blockchain of Things, Inc., Administrative Proceeding File No. 3-19621, Securities Act Of 1933 Release No.10736 / December 18, 2019, Order Instituting Cease-And-Desist Proceedings Pursuant To Section 8a Of The Securities Act Of 1933, Making Findings, And Imposing Penalties And A Cease-And-Desist Order (Dec. 18, 2019), https://www.sec.gov/litigation/admin/2019/33-10736.pdf.
