Without admitting or denying wrongdoing, BitClave agreed to return $25 million to investors, pay $3,444,197 in pre-judgement interest as well as a penalty of $400,000. All funds are to be returned to investors via a Fair Fund[i].
Additionally, BitClave agreed to turn over all Consumer Activity Tokens (“CAT”) to the fund administrator for deactivation, publish the notice of the SEC’s order, and remove CAT from all digital trading platforms.[ii]
Background on the SEC’s Order
In 2017 BitClave offered and sold CAT to investors to raise funds for the launch of its BitClave Active Search Ecosystem (“BASE”). BASE was marketed as a goods and services search platform providing not only targeted advertising but an alternative to traditional search providers that was meant connect businesses directly with customers.
Between June and November 2017, BitClave raised nearly $25.5 million dollars through the ICO, which took place in different stages. First, from July 5, 2017 through August 1, 2017, BitClave held the “pre-sale” phase of the offering where CAT were sold at discounts up to 50% on the initial price of $0.05 per token. Second was a bounty program in which BitClave offered approximately 9 million CAT in exchange for online marketing activities from over 600 individuals. In the final phase, BitClave priced the CAT at $0.10 per token but also provided bonus tokens in varying amounts to investors who had made deposits prior to November 29, 2017.
Overall, BitClave sold approximately 680 million CAT to over roughly 10,000 purchasers and met its “hard cap” of $25.5 million within 32 seconds of the official start of the final phase. In January 2018, BitClave created a total of 2 Billion CAT on the Ethereum blockchain and distributed the 680 million CAT tokens. Shortly thereafter, the tokens began trading on digital asset trading platforms.
Despite BASE not being fully developed nor launched at the time of the offering, BitClave released a white paper touting the credentials of its senior managers, engineers, and its products. Additionally, BitClave represented to investors that their investments would have liquidity based on its availability on multiple digital trading platforms; further, they emphasized an expectation that the price of CAT would increase based on a growing population of retail partners and customers.
Since CAT were offered and sold as investment contracts, BitClave sold securities in violation of Section 5(a) and Section 5(c) of the Securities Act of 1933 (“the Securities Act”). They failed to file a registration statement with the SEC or qualify for an exemption from registration.
What Should I Consider If I am Considering Launching an ICO? How Can You Help Me?
Any firm seeking to launch an ICO to raise capital should always consult with an experienced securities attorney to determine whether the ICO will require registration under the Securities Act or rely on any exemption.
The SEC has continued to emphasize that ICOs are securities offerings that require registration. As such an ICO must be accompanied by important disclosures and processes to ensure full and transparent disclosure. It is also important to control to whom and how the ICOs are marketed.
Jacko Law Group can help your firm with reviewing your firm’s proposed ICO and to determine if your ICO requires registration under the Securities Act or qualifies for an exemption.
Moreover, our attorneys can assist you with the creation of important proposal and disclosure documents as well as review marketing materials to ensure that information pertaining to your ICO is transparent and discloses important risks and other considerations for investors.
Our team of attorneys will use our extensive experience to ask detailed questions designed to determine if your ICO is ready to launch.
[i]A “Fair Fund” is a fund created by the SEC for disgorgement of monies to defrauded investors. The 2002 Sarbanes-Oxley Act created the use of Fair Funds by the SEC.
[ii] “Unregistered $25.5 Million ICO Issuer to Return Money for Distribution to Investors.” Sec.gov, U.S. Securities and Exchange Commission, 28 May 2020, www.sec.gov/news/press-release/2020-124.
- Jr. Partner
Jennifer Trowbridge, Esq. serves as Jr. Partner at Jacko Law Group, PC (“JLG”) where she provides corporate and regulatory counsel to clients with diverse business models and various backgrounds. Within her practice, Ms ...
Add a comment
- New SEC Climate Change and ESG Task Force to Enhance Investor Protection by Red Flagging Examples of Corporate Greenwashing
- What Investment Advisers Must do to Qualify for the DOL’s Prohibited Transaction Exemption for IRA Rollovers
- SEC Division of Examinations Cites Enhanced Focus on Business Continuity Processes, Protection of Retail Investors and ESG-Related Risks Among its 2021 Priorities
- FINRA Report Suggests Growing Need for Enhanced Risk Management in Cybersecurity and Outside Business Activities
- Deadline Approaching: Considerations for Your Form ADV
- Leveraging JLG's Latest Service: Real Estate
- Safeguarding Your Firm Against Fraudulent or Improper Recognition of Revenue
- New Advisers Act Advertising Rule to Undergo Further Review
- Investors, Advisers Must be Mindful to Comply with New U.S. Ban on Estimated $1 Trillion of Chinese Securities
- Your First Meeting on the SEC’s New Investment Adviser Marketing Rule Should Address These Topics
- Securities and Exchange Commission (SEC)
- Investment Advisers
- Regulatory Examinations
- Policies and Procedures
- Social Media Marketing
- Due Diligence
- Transition Services
- California Consumer Privacy Act (CCPA)
- Aging Clients
- Advisers Act
- Virtual Currency
- Dodd-Frank Act
- Ponzi Scheme
- Office of Compliance Inspections and Examinations (OCIE)
- Broker Protocol
- Securities Law
- Form U5
- Private Equity
- Private Funds
- Hedge Funds
- Regulation Best Interest
- Personally Identifiable Information (PII)
- Government Shutdown
- Risk Alert
- Exchange-Traded Funds (ETFs)
- Investment Company Act
- Rule 6c
- Wells Fargo