Block.one settles with the SEC

Block.one was able to agree on a civil settlement with the U.S. Securities and Exchange Commission in relation to its sale of an ERC-20 token between June 26, 2017 and June 1, 2018. According to the settlement, Block.one will pay a fine of US$24 million but will neither admit nor deny the SEC’s findings.

The settlement relates specifically to the ERC-20 token sold on the Ethereum blockchain during the ICO period as a fund-raising mechanism, and not the current EOS token that powers the EOS ecosystem. Because the ERC-20 token is no longer in circulation or traded, Block.one is not required to register either token as a security with the SEC.

Block.one is a global blockchain software company building in the EOS blockchain ecosystem. The company raised eyebrows when it conducted a year long ICO through 2017 and 2018 raising an estimated 4 billion dollars. Given the enormity of the sum raised and the SEC’s previous tough talk on unregistered ICOs, the $26 million fine with no admission of wrongdoing is being perceived by some as simply the cost of doing business, with Block.one getting off very lightly indeed.

Nic Carter of Castle Island Ventures tweeted, “The lesson here is that the government will not protect investors or demand disclosure from issuers. It’s on us, the cynical rabble, to take these people to task.”

“A number of US investors participated in Block.one’s ICO,” said Stephanie Avakian, Co-Director of the SEC’s Division of Enforcement. “Companies that offer or sell securities to US investors must comply with the securities laws, irrespective of the industry they operate in or the labels they place on the investment products they offer.”

Reading between the lines, Shapeshift ECO Erik Vorhees tweeted that, “The most significant part of the Block.one settlement is that it suggests that the pre-product, pre-launch ERC-20 version of the EOS token was a security, but the post-product, post-launch EOS token is not.”

Block.one said in a statement that the “settlement resolves all ongoing matters between Block.one and the SEC. We are excited to resolve these discussions with the SEC and are committed to ongoing collaboration with regulators and policy makers as the world continues to develop more clarity around compliance frameworks for digital assets.

The extraordinary success story of America is in part built upon its rich history of supporting entrepreneurship and emerging technologies, and we encourage and applaud the efforts of entrepreneurs and leaders from tech, finance, and other industries who are striving to make the U.S. an environment where technology can advance and thrive in a predictable and inclusive way.”

Finally, crypto VC and legal expert Katherine Wu has compiled and annotated both the SEC settlement order and the settlement letter that the EOS legal team sent to the SEC in her own unique style.