SEC charges Quantstamp for 2017 initial coin offering

The U.S. Securities and Exchange Commission (SEC) charged Quantstamp, a well-known blockchain security firm, with conducting an unregistered Initial Coin Offering (ICO) on July 21.

The SEC said that, in October and November 2017, Quantstamp raised over $28 million by selling QSP tokens to about 5,000 investors, including those in the United States. In the press release, the SEC states it specifically charged the company “for conducting an unregistered initial coin offering (ICO) of crypto asset securities.”

Failure to register

Quantstamp intended to use those funds to build and promote an automated smart contract security auditing platform. The firm emphasized the platform’s potential, led QSP investors to expect their token value to increase in line with the platform’s success, and made efforts to list the tokens for trading on third-party exchanges.

Though Quantstamp completed its automated smart contract security auditing platform in June 2019, it later ended operations and support for the platform.

Now, the SEC alleges that Quantstamp failed to register its offers and sales of QSP and says that those sales constituted securities. Quantstamp claimed exemption from registration; however, the SEC alleges that the company did not meet the criteria necessary for such exemption.

Quantstamp has now agreed to settle the charges. This will involve returning the proceeds from the offering and paying a civil penalty. Without admitting or denying the SEC’s findings, Quantstamp agreed to a cease-and-desist order and to pay a disgorgement of $1.98 million, prejudgment interest of $494,314, and a civil penalty of $1 million.

The SEC’s order also establishes a ‘Fair Fund,’ which will return funds paid by Quantstamp to affected investors. Quantstamp will also transfer all QSP that is in its control to this fund; those funds will be permanently disabled or destroyed.

The company has also been instructed to publish a notice of the order on its website and to send the order to crypto trading platforms that list its token.

SEC has targeted other firms

The order is the latest of several enforcement actions from the U.S. SEC. The agency sued both Coinbase and Binance in June, took action against TRON and related parties in March, and compelled Kraken to discontinue its staking service in February.

The SEC’s suit against Ripple suffered a setback earlier this month when a federal judge ruled that, in at least some cases, sales of XRP did not constitute the sale of securities. Institutional investments in XRP, however, were considered as such. The SEC is expected to appeal the decision.

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