SEC Orders Crypto Startup to Register ICO Tokens or Face $31M Fine

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  • Bloom Pro­to­col ran an ini­tial coin offer­ing (ICO) at the height of 2018’s bull market
  • Reg­u­la­tors demand Bloom reg­is­ter its tokens as secu­ri­ties with­in nine months

Cryp­to start­up Bloom Pro­to­col has been ordered by the US Secu­ri­ties and Exchange Com­mis­sion (SEC) to reg­is­ter its tokens or face a $31 mil­lion fine.

The SEC issued a cease-and-desist order to the com­pa­ny on Tues­day, accus­ing it of offer­ing unreg­is­tered securities. 

Bloom vio­lat­ed the Secu­ri­ties Act by offer­ing and sell­ing Bloom Tokens (BLT) in an unreg­is­tered ICO between Novem­ber 2017 and Jan­u­ary 2018, the order said. 

The Gibral­tar-reg­is­tered firm man­aged to raise $30.9 mil­lion from near­ly 7,400 investors around the world, includ­ing in the US, which means the SEC plans to fine Bloom for the amount of cryp­to raised in its ICO.

Found­ed in 2017, Bloom describes itself as a blockchain-pow­ered solu­tion for cred­it scor­ing that aims to reduce the risk of iden­ti­ty theft. It claims its sys­tem min­i­mizes fraud pre­ven­tion and the cost of cus­tomer onboarding.

Bloom pro­mot­ed BLT as invest­ment con­tracts which inher­ent­ly marks them as secu­ri­ties, in line with the Howey Test, accord­ing to the SEC.

“A pur­chas­er in the offer­ing of BLT would have had a rea­son­able expec­ta­tion of obtain­ing a future prof­it based upon Bloom’s efforts … to cre­ate an online iden­ti­ty attes­ta­tion sys­tem that would increase the token’s val­ue on cryp­to asset trad­ing plat­forms,” the reg­u­la­tor said.

Bloom’s crypto tanks even more after SEC order

BLT opened trade in late Jan­u­ary 2018 at around $1.38, still its record high, at the height of the pre­vi­ous bull mar­ket, per CoinGecko. BLT went on to col­lapse up to 80% over the next few months — an incred­i­bly volatile time for cryp­tocur­ren­cies, espe­cial­ly so for small and illiq­uid ones like BLT.

After a brief spike above $1 in May 2018, BLT’s price has been firm­ly squashed ever since. Bloom’s token now trades for a frac­tion of a cent, after dump­ing 70% on news of the SEC’s action.

At its peak, BLT’s mar­ket cap­i­tal­iza­tion reached near­ly $60 mil­lion, how­ev­er that fig­ure is now less than $500,000.

Bloom alleged­ly told prospec­tive investors its lim­it­ed pre­sale was “over­sub­scribed” and that it raised a “hard cap of $50m total.” The aver­age invest­ment dur­ing the pre-sale was $340,000 and the aver­age dur­ing the pub­lic sale was $2,000, reg­u­la­tors found, which when cal­cu­lat­ed don’t add up to the adver­tised cap.

Bloom is expect­ed to reg­is­ter BLT as a class of secu­ri­ties with­in 270 days and inform investors about poten­tial claims to recov­er their mon­ey with­in 60 days. It has been ordered to ful­fill all pay­ments to investors with­in three months of the claim form’s sub­mis­sion deadline. 

Bloom didn’t return Block­works’ request for com­ment by press time.


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  • Shali­ni Nagarajan

    Block­works

    Reporter

    Shali­ni is a cryp­to reporter from Ban­ga­lore, India who cov­ers devel­op­ments in the mar­ket, reg­u­la­tion, mar­ket struc­ture, and advice from insti­tu­tion­al experts. Pri­or to Block­works, she worked as a mar­kets reporter at Insid­er and a cor­re­spon­dent at Reuters News. She holds some bit­coin and ether. Reach her at [email pro­tect­ed]

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