Blockchain security firm Quantstamp is under scrutiny from the United States Securities and Exchange Commission (SEC) for conducting an unregistered initial coin offering (ICO) in 2017.
The firm has agreed to return the $28 million raised during this ICO in response to the charges.
Quantstamp's ICO Under Fire
In an announcement on July 21, the formally charged , a California-based company, over the unregistered ICO of its "crypto asset securities." The ICO, which took place in October and November 2017, raised over $28 million through the sale of its native QSP tokens to apporximately 5,000 investors.
Quantstamp planned to use the ICO proceeds to develop and market its automated smart contract security auditing platform. According to the SEC's order, the firm emphasized the "large market potential" of its service, causing QSP buyers to expect an appreciation in the value of their tokens.
According to the SEC, Quantstamp failed to register its offering and sale of QSP tokens, leading the SEC to deem these as securities. As part of the order, the SEC revealed that Quantstamp has consented to a cease-and-desist order and will pay disgorgement of $1,979,201, prejudgment interest of $494,314, and a civil penalty of $1 million.
The SEC’s order finds that Quantstamp violated the registration provisions of the federal securities laws. Without admitting or denying the SEC’s findings, Quantstamp agreed to a cease-and-desist order and to pay disgorgement of $1,979,201, prejudgment interest of $494,314, and a civil penalty of $1 million.
Quantstamp to Return ICO Proceeds
As part of the settlement, the SEC has provisioned the establishment of a "Fair Fund" to return funds to affected investors. Quantstamp has agreed to transfer its QSP token holdings to the Fair Fund administrator, with the tokens set to be "permanently disabled or destroyed."
Interestingly, the SEC's order notes that Quantstamp no longer operates or actively supports the automated smart contract security auditing following its deployment in June 2019.
This case underscores the SEC's commitment to and ensuring they comply with federal securities laws. With a spotlight on Quantstamp, it serves as a reminder to all blockchain firms of the regulatory requirements and potential penalties associated with ICOs.
Disclaimer: This article is provided for informational purposes only. It is not offered or intended to be used as legal, tax, investment, financial, or other advice.