• Quantstamp, a blockchain security company, has agreed to pay $3.5 million in fines to the U.S. Securities and Exchange Commission (SEC) for conducting an unregistered initial coin offering (ICO).
• The SEC alleged that Quantstamp’s ICO had all of the makings of a securities offering and raised over $28 million from 5,000 investors.
• The settlement marks another successful crackdown from the agency against crypto companies for violating securities laws.
Quantstamp Fined by SEC
Quantstamp, a blockchain security company, has agreed to pay ~$3.5 million in fines to settle charges against it from the U.S. Securities and Exchange Commission (SEC). The settlement marks another successful crackdown from the agency against a crypto company for violating securities laws, which industry leaders say lack clarity regarding how they apply to digital assets.
Charges Against Quantstamp
The SEC’s charges accused Quantstamp of conducting an “unregistered initial coin offering (ICO)” in the form of its QSP tokens in late 2017. QSP allows investors to purchase automated smart contract scans through Quantstamp’s protocol and was said to have raised over $28 million by selling “QSP” tokens to approximately 5,000 investors – including U.S.-based investors.
Howey Test Used
When determining whether a token is a security, the SEC regularly cites the Howey Test – a decades-old legal precedent for identifying investment contracts. This test is widely understood as containing four prongs with two including: 1) an investment of money; 2) a common enterprise; 3) profit based on efforts of others; 4) expectation of profit solely from effort of promoter or third party.
SEC Crackdown Continues
The settlement serves as yet another example of how serious regulators are about upholding existing laws when it comes to cryptos – even if their application can be unclear at times given how new this technology is overall. Despite this complexity, authorities are seemingly intent on preventing fraudsters from taking advantage of naive retail investors who don’t understand what they’re getting into with these projects or assets classes more broadly speaking..
In any case, this latest fine should serve as both a reminder that there still remain many regulatory gray areas surrounding cryptos -but also that those who choose not to follow existing rules may face stiff financial penalties regardless