The US Securities and Exchange Commission (SEC) has targeted the smart contract auditing firm Quantstamp for raising $28 million through an Initial Coin Offering (ICO) of unregistered securities.
Over the past few months, the SEC has been clamping down on multiple crypto firms amid a lack of crypto regulatory clarity.
SEC Settles for $3.4 Million from Quantstamp
According to the SEC notice, Quantstamp has agreed to settle a cease and desist order without admitting or denying the charges. It will pay a total fine of around $3.4 million, including “a disgorgement of $1,979,201, prejudgment interest of $494,314, and a civil penalty of $1 million.”
The company would also transfer its QSP token holdings to the Fair Fund administrator, which will eventually burn the tokens.
The SEC alleges that the smart contract auditing platform raised over $28 million in Ethereum (ETH) and USD through an unregistered ICO of its QSP tokens in October and November 2017. The QSP token price is down by almost 99% from its all-time high in 2017.
SEC Legal Actions Against Crypto Industry
The SEC made various arguments in the cease and desist order to prove that the QSP tokens were securities. One of the arguments was that the “Purchasers reasonably expected to profit from Quantstamp’s efforts.”
The SEC argued:
Quantstamp also touted the credentials of and plans for its team, which included the founders, executives, employees, and advisors of the company.”
The expectation of profit from the efforts of the other is one of the prongs of the Howey test, which is a framework to determine whether an asset is a security. However, a token is only classified as security if it passes all four prongs of the Howey test.
The American regulator is also fighting lawsuits against two of the largest crypto exchanges – Binance and Coinbase. Moreover, it addressed more than 67 cryptocurrencies as securities in these lawsuits.
Other crypto exchanges such as Paxful, Beaxy, and Bittrex had to shut down their services due to the regulatory pressure in the US.
Check out our article on the 9 best AI crypto trading bots to maximize profits.
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