The U.S. Securities and Exchange Commission’s unrelenting crackdown on unregistered initial coin offerings has claimed another victim—this time, an online gaming and gambling platform that attracted a star-studded list of investors.
Unikrn raised $31 million through its offering for the UnikoinGold token during the height of the crypto boom between June and October 2017.
According to blog posts by Unikrn, the A-list actor Ashton Kutcher and the billionaire “Shark Tank” star Mark Cuban were among those who invested in the company.
“Unikrn promised investors that it would facilitate a secondary trading market for the tokens and that its efforts to increase the usages for the UKG token would increase demand for and in turn, the value of, the tokens,” the SEC said in a Sept. 15 statement “The order finds that Unikrn offered and sold UKG as investment contracts, which constituted securities, yet failed to register the offering or qualify for an exemption.”
The SEC takes an exceptionally dim view of such practices—and says failure to follow its frameworks “harms investors and our markets.”
As part of a settlement, Unikrn has agreed to pay a $6.1 million penalty—described as “substantially all of the company’s assets”—which will be distributed among investors.
But Kristina Littman, the chief of the SEC Enforcement Division’s Cyber Unit, revealed that the terms go even further than this. She said:
“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.”
In a development that will have big consequences for Unikrn’s ability to operate, UKG is going to be disabled—and crypto exchanges that list the token will be asked to remove it. Confirming the settlement on Twitter, the Twitter account for Unikoin Gold said:
“Today we’re retiring Unikrn Loot, Unikrn Connekt, UnikoinSilver & UnikoinGold. The SEC will operate a fund for token holders who would like a refund—to participate, please withdraw your UKG from Unikrn to a private wallet.”
Crypto Mom does not approve
SEC Commissioner Hester Peirce dissented from the action, pointing out that while Unikrn “offered and sold its tokens in an unregistered offering and in a manner that did not qualify for an exemption” the company was not accused engaging in fraud in the process.
Peirce, known as “Crypto Mom” her pro-industry views, said that while registration violations are serious, Unikrn did not deserve to be killed. She said:
“We should strive to avoid enforcement actions and sanctions, however, that enervate innovation and stifle the economic growth that innovation brings. I believe that this action and its accompanying sanctions will have such consequences.”
Another one bites the dust
The SEC appears to be on a roll when it comes to pouncing on companies that fell afoul of federal securities laws.
Back in May, Telegram announced that its association with the Telegram Open Network was over after a judge stopped the blockchain project from going ahead. A month later, the encrypted messaging app reached a deal with the regulator—with the company paying an $18.5 million penalty and returning $1.2 billion to investors in the form of a “disgorgement.”
Some crypto companies have gotten off more lightly than others. Block.one ended up paying $24 million in penalties after the SEC took it to task over its $4 billion ICO—but in that case, it didn’t have to return the funds raised to investors.
Many of these lawsuits have boiled down to the Supreme Court’s four-part Howey Test. That defines an investment contract as a security if buyers invest money in a common enterprise with the expectation of profit by the seller and buyer. In addition, a fourth requirement must be met—that expectation of profit must be based on future efforts of the promoter or a third party.