Regulation
After Months of Silence by ICOBox, the SEC Seeks ‘Default Judgement’ and ‘Permanent Enjoinment’
No Response
Beginning roughly 4 months ago, the SEC set their sights on ICOBox, and actions taken by the company and its founder throughout 2017. The SEC states,
“ICOBox, an incubator for digital asset startups, was founded in mid-2017 by Evdokimov, its CEO and “vision director”. To raise funds, defendants sold approximately $14.6 million worth of securities in the form of digital assets called “ICOS” tokens. Between August 9, 2017 and September 15, 2017, defendants sold ICOS tokens to over 2,000 investors, in the United States and globally…By not registering the offering with the SEC, defendants violated the securities laws’ registration requirements”
Unfortunately, despite being made aware of the various charges laid against them, the SEC and Courts have been met with nothing but silence.
Default Judgement
The aforementioned lack of response has led to the recent developments, to be discussed here today. By failing to respond to the SEC’s filing, in September of 2019, ICOBox and its Founder, Nikolay Evdokimov, have essentially forced their hand.
Backed into a corner by the silence demonstrated by ICOBox, the SEC has filed for a ‘default judgment’ on their accusations of alleged securities violations. Simply put, a ‘default judgement’ refers to a ruling put forth by a Judge, when presented with a case where the defendants remain absent from the proceedings without valid reasoning.
While there existed the possibility of defending their actions, should a default judgement be awarded, ICOBox essentially forfeits this right.
Permanent Enjoinment
While a default judgement is being sought, the SEC has not stopped there. In their recent filing to the courts, the SEC attempts to build a case, which demonstrates the intimate nature between ICOBox and its founder, Nikolay Evdokimov.
The SEC hopes to show that Evdokimov was, not only the face of the company both internally and externally, but that he had a direct hand in the actions undertaken by ICOBox.
In doing so, the SEC hopes for the court to award a ‘permanent enjoinment’ of, both, the company and its founder. A ‘permanent enjoinment’ refers to a court enforced prohibition of certain activities imposed upon specific entities – in this case, ICOBox and Evdokimov.
Past Actions
When this saga first began, in September of 2019, we reported on the initial steps taken by the SEC. The allegations raised by the regulatory body, at that time, are only now coming to an end, as they look to close out the case and move on.
SEC Zeroes in on ICOBox Activity, Filing Multiple Charges
Requests of the Court
In their filing, the SEC elaborates on the various infractions committed by the company and its founder. They proceed to list various suggested/requested actions to be taken by the court against the defendants. The following are a few examples of their requests.
- ICOBox and Evdokimov should be permanently enjoined
- The Court should order joint and several disgorgement with prejudgment interest
- The Court should order second tier penalties against Evdokimov
- Default Judgement Should be Entered Without Delay
ICOBox
Launched in 2017, ICOBox was a service provider for companies looking to host token based capital generation events, such as ICOs and STOs. Since their inception, ICOBox has helped its clients raise over $650M, in addition to raising over $14M in funds through their very own ICO.
Company operations were overseen by Founder, and CEO, Nikolay Evdokimov.
In Other News
While every case surrounding illegal activity brought forth by the SEC is an important one, there are two, in particular, that have found themselves creating headlines in recent months. These would be the situations developing around, both, Ripple and Telegram. Each of these companies have been accused of actions violating existing securities laws. On various occasions we have covered these events as they develop. To learn more about these on-going cases, make sure to peruse the following articles.
Ripple XRP Under Increased Scrutiny as a Security
Telegram Wins Court Battle but Abandons ‘TON’ Blockchain
In a surprising turn of events, The Qatar Financial Centre (QFC) announced that it would ban all cryptocurrency-related activities within the sector. The news comes as a shock as Qatar has was seen as a leader in terms of blockchain adoption in the region. Now, government officials are voicing concerns over money laundering and terrorist financing as a means to stifle local crypto activities.
News of the crypto ban came via a report by the Qatar Financial Centre Regulatory Authority (QFCRA). In the now-infamous report, the QFCRA stated that all services involving cryptocurrencies are now illegal within the exclusive economic zone. Specifically listed in the report are critical components to the market. These components include crypto to crypto trades and crypto to fiat exchanges. Also, the report directly lists virtual asset services including those that facilitate the trading, custody, and issuance of virtual assets in any form or manner.
Security Tokens Safe
Interestingly, the report doesn’t ban security tokens. In fact, these unique financial instruments remain unaffected by the new legislation. The report states that financial instruments regulated by the QFCRA, the Qatar Central Bank, or the Qatar Financial Markets Authority are exempt from the ban. This makes sense from Qatar’s standpoint because these tokens undergo full AML and KYC verification.
Discussing the decision, Sheikh Abdulla bin Saoud Al-Thani, the governor of Qatar’s Central Bank pointed to a few key points as to why the regulations make sense. He stated that a correlated effort needed to be put forth to combat money laundering and terrorist financing. He believes that only a stricter and effective regulatory and legislative framework can accomplish this task.
Qatar Central Bank
It appears as if this latest maneuver is actually just a part of Qatar’s overall new approach towards combating money laundering. Recently, the country instituted wide-sweeping AML legislation. All of these laws seek to curb those attempting to hide money from the government.
The Qatar Financial Centre – QFC
The QFC is a special jurisdiction within the country designed to spur economic growth. Companies that call the QFC home get access to a host of exclusive benefits. These benefits include reduced legal, business, tax, and regulatory infrastructure. In this way, Qatar seeks to attract businesses and facilitate economic development moving forward.
Tighter Regulations Globally
Qatar’s decision to add more regulations to the crypto sector mirrors that of numerous other countries. Just recently, US lawmakers proposed new legislation to bring much of the crypto market under the jurisdiction of regulators. If the new bills receive approval, there would be wide-sweeping implications for the industry.
Additionally, EU Lawmakers have come up with new legislation as well. On January 10th, 2020, the European Union (EU) will initiate the Fifth Anti-Money Laundering Directive (5AMLD). This new law requires that all digital asset platforms and even wallet providers verify and record customer identities.
Qatar Steps Backwards
As Qatar attempts to gain more control over the use and trading of digital assets within its border, it may find that these new regulations have an adverse effect. Cryptocurrencies, many of which are designed to function anonymously, are not so easily regulated and monitored. For now, Qatar will see exactly what it takes to police the digital realm as they start the enforcement of their new crypto legislation.
Troubles for the Popular cryptocurrency XRP and its foundation Ripple continue to mount up. Recently, new evidence emerged which could place the group under increased scrutiny. A document, now making it’s away around the internet appears to show that Ripple, the company behind XRP, used the token to increase its wealth. Now, regulators want to take another look at the XRP project to determine if it is in fact, a security.
On Aug. 5, 2019, a group of investors filed a complaint against Ripple with the SEC. The report claims to provide concise evidence that Ripple used the XRP token to garnish huge profits. The report claims that the company currently is engaged in selling these tokens in excess of the need for profit.
Ripple XRP Securities?
If these allegations are found to be true, Ripple could see prosecution. Officials may want to prosecute under the sales of unregistered securities via the U.S. Securities and Exchange Commission’s laws. Specifically, the report claims that Ripple violated numerous securities laws in the state of California. The data put forth in the suit suggests that the company utilized the XRP brand to enrich themselves significantly.
The lawsuit points to a blurring of the lines between Ripple’s enterprise solutions and XRP. Notably, the report revealed that the firm holds the majority of the total supply of XRP. The company utilized its stake as a form of profit generation in a couple of key ways. For one, Ripple actively limited the supply of XRP to increase demand. Additionally, Ripple paid exchanges to list XRP with the intent of increasing its value
Ripple Holds the Majority of XRP
To grasp just how this strategy unfolded, you need to understand that Ripple is the largest holder of XRP. Notably, the firm will be for the foreseeable future. Consequently, just a one-cent increase in the price of XRP equals around $600 million in profit gained for the company.
Discussing these concerns, William Hinman, Director of the Division of Corporation Finance of the SEC made his case for the labeling of XRP as a security. He explained that whenever you have a third party that drives the expectation of a return, you are usually dealing with a security. These firms use the token to increase the value of the enterprise.
Ripple CEO Brad Garlinghaus
Hinman stated that the firm raised funds “in excess of what may be needed to establish a functional network.” For its part, Ripple stated that these funds went towards enhancing the functionality of the token’s ecosystem.
XRP Sales
To put those gains into perspective, you don’t need to look any further than Co-founder Jed McCaleb. While McCaleb is no longer with the firm, he sells half a million XRP on a daily basis according to Bloomberg. Notably, other company officials engaged in this type of activity as well. However, in a recent interview, Ripple CEO, Brad Garlinghouse, adamantly denied that Ripple has any control over the price of XRP. He pointed to the losses incurred over 2019 as proof. Last year, Ripple slumped nearly 60 -percent from $0.51 to around $0.20.
XRP – What Tomorrow Holds
As one of the most popular platforms in the crypto space, XRP continues to see growing adoption. If the SEC were to label XRP a security it could have serious ramifications for those involved in the project. For now, investors continue to wait and see how the SEC’s strategy plays out.
The hugely popular messaging app, Telegram enjoyed a short-lived win in court against the Securities and Exchange Commission (SEC) this week. A federal judge denied the SEC’s request for Telegram to hand over all bank statements before January 8th regarding its TON blockchain project. Unfortunately, the mounting legal ramifications coupled with the more aggressive stance taken by the SEC following the start of the trial has made company executives reconsider their TON strategy altogether.
Telegram has been enthralled in a case with the SEC over the development of its TON blockchain and Gram cryptocurrency for months. In October, the SEC sued Telegram. According to SEC documentation, the firm alleges that Telegram violated numerous federal securities laws during its record-breaking 2017 $1.7 billion initial token offering (ICO).
Defending the TON Blockchain
For its part, Telegram put up a hefty defense. The company claimed that Grams are utility tokens. Therefore, they fall outside SEC jurisdiction. In turn, the SEC saw these actions as a slap in the face. Consequently, the group decided to expand its investigation. Now the SEC doesn’t just want to stop the sales of Gram tokens, the group seeks to call into question the validity of the company’s 2017 ICO.
The SEC claims that Telegram engaged in fraudulent activities during its fundraising campaign. This pivot towards a more aggressive prosecution of the firm comes after SEC officials accused Telegram of stalling and making excuses regarding the group’s request for investor information. Ironically, its exactly this request which has put Telegram in a bit of a quagmire.
Small Win for the TON Blockchain
Federal Judge, Kevin Castel of the Southern District of New York is the official preceding over the case. He handed Telegram a small victory in court this week after postponing the SEC’s demand for investor information. Telegram denied the ability to provide this info by the requested January 8th deadline because it would violate EU consumer protection laws. Basically, EU privacy requirements mandate that the firm remove all personal information from EU citizens files before handing them over to a foreign government.
Judge Castel did, however, let Telegram officials know that the denial was really more of just a postponement. He stated that in the “not-too-distant future” the firm would need to provide the requested bank statements to the SEC. The added time frame gives Telegram a chance to produce such records without violating any foreign data privacy laws.
Rethinking the TON Blockchain Concept
Following the increased SEC pressure, Telegram officials decided it was best to abandon some of the most critical parts of its TON blockchain strategy. In a recent blog post, the firm shed some light on the monumental changes executives decided on. For one, Telegram will no longer integrate its Gram cryptocurrency wallet into the Telegram Messenger. Basically, the wallet will be available solely on a stand-alone basis.
TON Blockchain Post via Telegram Twitter
The post was equally damming for the TON blockchain project. Company officials stated that they have no plans to maintain or develop future applications for the TON blockchain. In fact, the company stated that it hopes that third-party developers will step in to keep the blockchain functioning via some newly founded foundation.
Massive Blow to TON Blockchain Investors
The decision to not integrate the TON ecosystem into the Telegram messenger is a massive blow to investors. Telegram has over 200 million monthly active users. The direct integration of TON into the platform would have provided the system with a huge advantage over the competition. Starting the concept with a giant captive market and giving users instant and seamless access to Gram tokens was the main driving force behind most investor’s decision to become a part of the TON blockchain.
To drive the post home, Telegram made a public statement, which is more of a legal disclaimer. In the disclaimer, the company stated some surprising facts. For one, Telegram claims that it never “made any promises or commitments to develop any applications or features for the TON Blockchain.” This post left TON investors wondering what is to happen to their capital now that the project’s main draws are no longer the reality.
Telegram – TON Caught in the Cross Hairs
Considering the sheer size of Telegram’s 2017 ICO, it’s not a huge surprise to see that the SEC decided to put some pressure on the firm. Unfortunately, the SEC has now left TON investors holding the bag, as the firm has all but abandoned their crypto dreams.
Is it Hoax?
There are some analysts that believe that the new tactics displayed from Telegram are actually part of a larger strategy. They see the maneuvers as a way to ease the platform into existence. By producing the TON blockchain and wallet as a separate entity, Telegram can avoid much of the fear and disdain regulators and lawmakers have shown thus far.
Much of this negative press can be attributed to the spillover from Facebook’s Libra project. Government officials are not keen on huge social media platforms entering the crypto sector. Already, lawmakers from both sides of the aisle have put forth stifling regulatory bills to slow the adoption of cryptocurrencies by these tech behemoths. The question now remains, will these regulations be enough to halt these projects? In the case of the TON blockchain, it appears that they were.
TON – A Dream Lost
It’s sad to see a concept as advantageous as the TON blockchain dismantled slowly. The sheer size of Telegram’s network would have significantly boosted cryptocurrency adoption globally. Analysts pointed towards massive social media networks as one of the fastest ways to integrate cryptocurrency use in an effective manner. Unfortunately, its exactly this large scale adoption that has lawmakers and regulators on edge.
No Grams for You
Despite strong support from investors, and a record-breaking ICO, it now looks as if the entire TON blockchain project has come into question. Hopefully, Telegram and the SEC find a mutual understanding. If so, it could allow for the continuation of the development of this unique and game-changing blockchain. For now, the cryptocommunity awaits to see both the SEC’s and Telegram’s final response.