SEC fines ICOBox for selling unregistered securities

In September 2019, the U.S. Securities and Exchange Commission announced in a press release that it was suing ICOBox and its founder Nikolay Evdokimov for conducting an illegal securities offering for its digital token and for providing brokerage services for other crypto asset offerings.

US regulator tightens reins on crypto sales

The regulator alleges that the ICOBox token sale, during which the company raised $14.6 million through the sale of tokens, was in violation of securities law as the company “claimed the tokens would increase in value upon trading. [However, …] ICOS tokens are virtually worthless.”

The SEC further claimed that ICOBox did not register as a broker but conducted brokerage business by helping blockchain startups raise over $650 million via ICOs.

“By ignoring the registration requirements of federal securities laws, ICOBox and Evdokimov exposed investors to investments, which are now virtually worthless, without providing information that is critical to making informed investment decisions,” stated Michele Wein Layne, Regional Director of the Los Angeles Regional Office, at the time.

SEC seeks default judgment against ICOBox

Four months later, in early January 2020, the SEC is reportedly pushing for a default judgment against ICOBox and its founder Nikolay Evdokimov, which would result in $16 million in disgorgement and civil penalties.

According to a report by Finance Feeds, the SEC’s proposed default judgment would mean that ICOBox would have to pay $16,059,429.99 (the amount raised during the ICO plus interest) to the SEC while the startup’s founder would be required to pay a civil penalty of $189,426.

The SEC believes that by not registering the ICOS token sale as a securities offering, ICOBox deprived investors of potentially important information about the company’s future prospects and the viability of an investment in its digital token.

Additionally, the ICO-as-a-service platform actively encouraged investors to invest in token sales by ICOBox clients in exchange for a fee charged to the issuers without registering as a broker-dealer. That would constitute a violation of federal securities laws, according to the plaintiff.

The ongoing case against ICOBox illustrates the SEC’s commitment to regulating the crypto asset markets, especially as it pertains to token sales that have been held within US borders. That could mean that startups who raised funds during the ICO boom of 2017 may get an uncomfortable knock on their door about how their token sales, especially given that the majority of ICO tokens are now trading below their issuance price.

Earlier this week the SEC issued an investor warning urging caution before investing in initial exchange offerings (IEOs).