Company Evades SEC Penalty Despite Illegally Issuing Security Tokens

The U.S. Securities and Exchange Commission (SEC) has actually chosen not to enforce a penalty on a company that had actually provided security tokens without its approval and without receiving an exemption. The company raised around $12.7 million.

No Penalty

The SEC revealed on Wednesday that it did not enforce a penalty on Gladius Network Llc despite the fact that the company has actually been charged with carrying out an unregistered preliminary coin offering (ICO). The company composed in its order:

The Commission is not enforcing a penalty since of the considerable actions Gladius required to remediate the offense.

Company Evades SEC Penalty Despite Illegally Issuing Security Tokens

The order information that Gladius performed the ICO in late 2017 after the SEC cautioned about security token offerings in its DAO report. The Washington D.C.-based company raised around $12.7 million worth of ether “to finance its plan to develop a network for renting spare computer bandwidth to defend against cyberattacks and enhance delivery speed,” the company described. The ICO was neither signed up with the SEC nor received an exemption.

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Self-Reporting

Gladius, a Nevada Llc, “self-reported to the SEC’s enforcement staff in the summer of 2018, expressed an interest in taking prompt remedial steps, and cooperated with the investigation,” the SEC detailed.

Noting that the Commission “has been clear that companies must comply with the securities laws when issuing digital tokens that are securities,” Robert A. Cohen, Chief of the SEC’s Cyber Unit highlighted that “Today’s case shows the benefit of self-reporting and taking proactive steps to remediate unregistered offerings.”

Company Evades SEC Penalty Despite Illegally Issuing Security Tokens

According to the SEC, Gladius has actually accepted return funds “to those investors who purchased tokens in the ICO and request a return of funds, and register its tokens as securities pursuant to the Securities Exchange Act of 1934.” The company will also submit a routine report with the SEC. “Gladius consented to the order without admitting or denying the findings,” the SEC composed.

In contrast, the SEC enforced charges on 2 business in November in 2015 for comparable registration offenses. Carriereq Inc. (Airfox) and Paragon Coin Inc. were purchased to pay $250,000 civil loan penalty each to the SEC for transfer to the basic fund of the United States Treasury.

A ‘Terrible Example’

After the SEC’s statement, Gabor Gurbacs, Director of Digital Assets Strategy at Vaneck and its subsidiary MVIS, commented:

This is really a dreadful example. The person did an unregistered offering. Self-reported it. No charges. Miraculously got away with it. No-one understands why … It’d be far more beneficial from regulators to develop a safe-harbor for tokens with particular criteria.

Vaneck has actually a proposed guideline modification submitted with the SEC for the Vaneck Solidx bitcoin exchange-traded fund (ETF) which will be noted and traded on the Cboe BZX Exchange. It was submitted on Jan. 30 and released in the Federal Register on Feb. 13.

Do you believe the SEC should have enforced a penalty on this company? Let us understand in the comments area below.

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