ICO Start-up BitClave Must Return $25.5M to Investors to meet SEC’s demands

Key Highlights:

  • The U.S. SEC has charged the crypto start-up BitClave with the sale of unregistered securities
  • The fact that BitClave emphasized its expectation that the tokens would increase in value is one of the reasons why CAT tokens fell under the definition of securities
  • BitClave agreed to return $25.5 million to investors and will pay an additional $400,000 penalty and another $3,444,197 of prejudgment interest

The United States Securities and Exchange Commission (SEC) has found the crypto start-up BitClave responsible for selling unregistered securities in its initial coin offering (ICO). The company has to pay a penalty, interest and return $25.5 million to investors.

The SEC claims BitClave Sold Unregistered Securities

In a May 28th press release, the United States Securities and Exchange Commission (SEC) announced charges against BitClave, which raised over $25 million in just 32 seconds at the end of November 2017. The company was selling its Consumer Activity Tokens (CAT), which aimed to compensate internet users for their data which could be used for advertisement targeting. Approximately 9,500 investors participated in the ICO before the hard cap of $25.5 million was hit. 

Now the SEC has deemed CAT unregistered securities as:

“BitClave planned to use the ICO proceeds to develop, administer, and market a blockchain-based search platform for targeted consumer advertising.  BitClave emphasized its expectation that the tokens would increase in value and took steps to make the tokens available for trading on third-party digital asset trading platforms after the ICO.”

Kristina Littman, Chief of the SEC Enforcement Division’s Cyber Unit stated that by not registering the California-based start-up failed to comply with federal securities laws:

“Issuers of securities, traditional or digital, must comply with the registration requirements of the federal securities laws. The remedies ordered by the Commission will provide meaningful relief to investors in this unregistered offering.”

The SEC has recently published a framework to help market participants determine whether or not a digital asset is a security. If an asset is expected to increase its value due to work conducted by others then it can be reasonably expected to be a security, SEC states.

BitClave Settles with the SEC

The SEC’s report states that BitClave did not admit, nor deny the regulator’s claims. Nevertheless, the crypto firm has “agreed to settle the charges by returning proceeds from the offering and paying additional monetary relief to be distributed to investors through a Fair Fund.” 

BitClave is going to return $25.5 million to investors and additionally pay a $400,000 penalty and another $3,444,197 of prejudgment interest. 

Furthermore, the ICO organizer agreed to request the removal of CAT tokens from all crypto exchanges. According to CoinMarketCap, CAT, which has been almost worthless in the past few months, is still trading on cryptocurrency exchange YoBit. However, all the tokens remaining in the BitClave’s control will be transferred to the fund administrator for permanent disabling.

BitClave’s Goodbye

BitClave also published an announcement on its website regarding the settlement with the SEC. The announcement reads:

“We are pleased to resolve this regulatory matter with the SEC. We are grateful to have had support from a team and a community passionate about data privacy and finding ways to enable consumers to control when and how they share data.”

BitClave is one of the many ICOs that the SEC has decided to crack down on. If you want to know more, you should read our article on why we believe the ICO concept is dead.

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