The US top regulator has stepped in to stop yet another ‘initial coin offering’ (ICO) after its operators failed to register their tokens as a security. The principals of eSports gaming and gambling platform, Unikrn have agreed to settle charges brought by the US Securities and Exchange Commission (SEC), which found that their conduct was that of unregistered broker-dealers.
Unikrn is a Washington-based company that was created in 2017 to offer a blockchain marketplace for bettors, esports fans and gamers.
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As explained in the order, the company raised $31 million through an ICO that sold its UnikoinGold (UKG) tokens to help further develop additional applications on the gaming platform.
The SEC was careful to note that they had not accused Unikrn of fraud, but rather of failing to register their tokens as securities. Notably, the agreement states that Unikrn will return funds to harmed investors via an investor compensation fund called a ‘Fair Fund’.
In other crypto-related settlements, the SEC used different mechanisms to compensate investors who participated in an initial coin offering. Namely, the ICO issuer has either voluntarily returned all proceeds of the token sale or has been required to go through a claims process.
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Unikrn promised investors that it would facilitate a secondary trading market for the tokens which would offer them an exit strategy to cash out their holdings just as demand increases and in turn, the value of the tokens.
As such, the SEC determined that UnikoinGold amounted to selling securities without filing a registration or qualifying for a registration exemption, although it self-reported its product to the watchdog.
The commission said that Unikrn agreed to halt the offering and pay back all fees it had already collected. To resolve the SEC’s allegations, the ICO organizers will pay a $6.1 million penalty, which substantially accounts for all of the company’s assets.
Reacting to the case, the head of the SEC Enforcement Division’s Cyber Unit, Kristina Littman, stated: “This resolution allows us to return substantially all of Unikrn’s assets to already-harmed investors and includes measures to prevent future sales to retail investors, including the disabling of the tokens.”
The regulatory status of cryptocurrency offerings generally, remains somewhat murky. However, the SEC warned that securities law might apply to some virtual tokens depending on their specific characteristics. In those cases, securities registration, disclosure and other requirements apply. Although, putting cryptocurrency companies and their advisers on notice failed to chill the booming market.
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