On August 7th, the New Jersey Bureau of Securities (The Bureau) issued multiple ‘Cease and Desist’ orders, on behalf of themselves and the North American Securities Administrators Association (NASAA).
These actions took place as part of an effort dubbed by the regulatory bodies as ‘Operation Cryptosweep’. The companies which were on the receiving end of these orders were a pairing of New Jersey based outfits – Zoptax and UNOcall.
This company indicated that they utilize a decentralized network to facilitate private voice-over-internet-protocol (VOIP) calls.
Their accompanying ICO was originally expected to raise upwards of $3.4 million USD. The Bureau indicates that, not only do the tokens meet the framework of a security, but they were not registered with authorities. Furthermore, the company was found to make various misleading statements on their website.
CEO and Founder, Rao Naveed, oversees company operations.
UNOcall touts their product as a ‘secure coin and payment platform’, based on blockchain technologies.
Much like Zoptax, UNOcall was found to be displaying misleading statements on their site, containing guarantees on investment returns. This ICO and accompanying tokens were also not registered with authorities.
Founder, Oggan Sarfuddin, oversees company operations.
Upon announcing the distribution of multiple cease and desist orders, Acting Director of the Division of Consumer Affairs of the New Jersey Bureau of Securities, Paul R. Rodriguez, took the opportunity to warn investors. He stated,
“The Bureau’s actions today, and the actions taken by other securities regulators during ‘Operation Cryptosweep,’ are a reminder to investors that while not every initial coin offering or cryptocurrency-related investment is fraudulent, there are significant risks involved with these products…Investors must be on alert and not be tempted to invest in cryptocurrency-related investments without first vigorously vetting any transaction.”
Bureau Chief, Christopher Gerold, elaborated on his colleagues statement, stating,
“With the price of Bitcoin increasing over the last few months and the announcement of Facebook’s Libra, there has been a sharp increase in public solicitations to invest in crypto-related products that appear on their face to be suspect…The two actions today are a reminder to investors that investing in cryptocurrencies or crypto-related products have significant risks and investors must do their diligence before investing.”
New Jersey Bureau of Securities
This regulatory body operates out of the state of New Jersey, and is tasked with ensuring fair and transparent business practices. They achieve this through the enforcement of various regulations, applicable to investment vehicles such as digital assets.
Bureau Chief, Christopher Gerold, who also resides as the President of the NASAA, recently announced the release of an educational video. This video discusses commonly used tactics by fraudulent companies, such as those discussed here today. Check out the video HERE.
Those that follow the world of blockchain will note that these companies are not the first to be accused of fraud, and to receive cease and desists orders. Since the world of blockchain and cryptocurrencies really began to boom, in 2017, there have been various examples of this. The following are a few of the more recent companies to face the wrath of regulatory bodies due to their ICOs.
Shopin Faces Multiple Fines from the SEC
Not only does the SEC allege that Shopin hosted an unregistered securities offering in the form of the ICO, but that the founder used more than half a million dollars of the funds raised for his personal expenses.
The ICO in question was, at the time, a successful endeavour for Shopin. While performed in violation of multiple laws, the company managed to raise over $42 million.
Those that took part in the ICO were informed by Shopin that a platform, aimed towards revolutionizing online shopping through the use of blockchain technology, would be built. This was found to be a lie –to date there has been no platform developed.
To create trust among ICO participants, the company also indicated that they maintained various relationships with established companies. This was also found to be a lie.
After a long period of inactivity, the SEC has used 2019 as a launching platform for their assault on improperly/fraudulently run ICOs. Shopin is simply the latest entity to have found themselves as the subject of the SEC’s attention. The following articles are just a few of those that have found themselves on the receiving end of similar fines, over the past year.
All for Show?
While the exodus of bad actors within the world of blockchain is definitely a positive thing, are fines being levied by the SEC actually effective?
It was recently reported how Gladius, a company which saw themselves in the crosshairs of the SEC, failed to pay nearly $13 million in fines. Time will tell if the various companies, which also find themselves in similar situations, actually pay up, or claim broke.
While not addressing the situation involving Shopin directly, SEC Chairman, Jay Clayton, recently reiterated his stance towards the blockchain community.
“This past year, the Commission has brought actions against a number of issuers of digital assets for allegedly engaging in fraud and for violating the registration provisions of the federal securities laws,” he said. “The Commission also filed charges related to the unlawful promotion of initial coin offerings (ICOs) and the unlawful operation of a digital asset trading platform.”
“Overall, I believe we have taken a measured, yet proactive regulatory approach that both fosters innovation and capital formation while protecting our investors and our markets.”
As is often the case, a representative elaborated, in their announcement, on the decision to charge Shopin. Marc P. Berger, Director of the SEC’s New York Regional Office, had the following to say on the matter.
“As alleged in today’s action, the SEC seeks to hold Eyal and Shopin responsible for scamming innocent investors with false claims about relationships and contracts they had secured in support of a blockchain-based universal shopper profile…Retail investors considering an investment in a digital asset that meets the definition of a security must be afforded the same truthful disclosures as in any traditional securities offering.”
Founded in 2017, Shopin maintains headquarters in New York. The company set out with the intent to evolve e-commerce through an influx of blockchain technology.
CEO, Eran Eyal, currently oversees company operations.
Bank of China Moves to Regulate STO
This month, executives from the bank of China unveiled some major announcements regarding the future of blockchain technology in the country. Apparently, the Bank of China will now create its own centralized cryptocurrency. Additionally, the bank intends to roll out a robust security token protocol in the coming weeks.
In the past, Chinese officials have been very critical of cryptocurrencies. The country famously banned exchanges back in 2017. Also, Chinese officials have been hard on miners in the country despite the fact that the Chinese government operates some of the largest mining facilities in the world.
Pivot Towards Blockchain – Bank of China
Now it appears as if Chinese officials got the memo that blockchain technology is here to stay. At the recent Finance Technology Summit in Beijing, the Chief Scientist of the Bank of China, Weimin Guo described the country’s new strategy moving forward.
National Digital Currency
China now intends to release its own cryptocurrency called China’s Digital Currency Electronic Payment (DCEP). This cryptocurrency will serve as the only national digital currency of the country. Interestingly, the token will be a stablecoin pegged to the Chinese RenMinBi (RMB).
Developers hope that the integration of blockchain and cryptographic technology will streamline the outdated financial practices currently in use. Blockchain tech brings some serious advantages to the table. For one, the tech eliminates the frictions seen in traditional payment systems.
Shade on Bitcoin
After acknowledging the huge benefits gained from blockchain technology, Guo stated that Bitcoin had failed its purpose to provide a safe haven from the traditional market manipulations. He stated that Bitcoin’s launch was poorly timed and its primary goal to disrupt the global economy was “impossible.”
Strict Regulations – Bank of China
While China loosens its blockchain leash, it’s obvious the country wants to keep the technology in check. For example, all STOs are to operate within a strict “regulatory sandbox mechanism” at first. Basically, the country wants to promote innovation with new technology but desires a measured integration to maintain complete control over the sector.
It’s no surprise that China feels the pressure from blockchain adoption. At one time, China controlled a large majority of the crypto market. Since that time, the country continually targeted crypto investors and traders.
Additionally, regulators expressed concern about major tech firms such as Facebook issuing a cryptocurrency. Not surprisingly, regulators only want currency creation to originate from a national bank or government agency.
China’s Big Hope
Chinese regulators now believe that the DCEP has the potential to evolve into a leading global currency. Bank officials seek to integrate the currency into the main economy as soon as possible. This integration will span the scope of the Chinese economic sector from retail all the way to major investment firms.
China Inches Back into the Game
It’s interesting to see how Chinese regulators continue to embrace blockchain technology. China has always been on edge over the emergence of cryptocurrencies, but as it stands today, the country has to embrace the technology or fall to the wayside against the growing competition.
VNX Exchange Hopes to Get in Front of Upcoming AMLD5 Legislation with Sumsub Collaboration
Recently launched platform, VNX Exchange, and compliance expert, Sumsub, have announced a new collaboration. This will see Sumsub provide the necessary technology, which will allow VNX Exchange to ensure compliance with European laws surrounding AML/KYC.
This move is a proactive one, being taken by VNX Exchange. They have indicated that they chose to collaborate with Sumsub, as they possess the ability to remain compliant with the upcoming AMLD5 European legislation.
These compliance measures are what allow for regulatory bodies to keep nefarious activity in check. This is done by, first, knowing who they are dealing with. This part is taken care of through KYC checks, which gather information such as legal names, place of residence, passport info, and etcetera. Next, AML puts roadblocks in place, designed to prevent the origins of money from being clouded.
Unfortunately, blockchain based endeavours (including digital securities), remain synonymous with nefarious activity, to date. Much of this stems from past markets that saw the ICOs boom and bust. The entire point of digital securities, however, is to offer the benefits of tokenization, through a regulatory compliant and legal manner. For this to be achieved, and to dispel pre-existing notions (warranted or not) surrounding blockchain based endeavours, AML and KYC remain of utmost importance.
As indicated above, compliance measures surrounding AML and KYC are of the utmost importance within the digital securities sector. Many companies have recognized this, and are in the midst of developing their own solutions for the issue at hand. The following companies are but a few of those leading the way.
Upon announcing their collaboration, representatives from each, Sumsub and VNX Exchange, took the time to comment. The following is what each had to say on the matter.
Alexander Tkachenko, CEO of VNX Exchange, stated,
“VNX Exchange is very serious about all aspects related to compliance and investor protection. For these purposes, we are leveraging the benefits and advantages of innovative compliance systems provided by Sumsub to create a seamless client experience and open access to the new class of liquid digital assets backed by venture capital investments.”
Jacob Sever, Cofounder of Sumsub, stated,
“AMLD5 is soon to gain full power and influence among all financial entities in Europe with reinforced AML demands. With many clients based in Luxemburg, such as JobToday, Wecan Group, etc., we see the demand for compliance and anti-fraud measures, and know how to ensure them. VNX is a serious and mature project, with founders and management from traditional well-respected foundations, so we are happy to provide them with a high-level solution, optimising compliance under the Luxembourg regulations.”
Founded in 2015, Sumsub is a tech provider operating out of London, U.K. Above all, services offered by Sumsub revolve around compliance. This includes KYC/AML, investor onboarding, and more.
CEO, Andrey Severyukhin, currently oversees company operations.
Founded in 2018, VNX Exchange operates out of Luxembourg. The team at VNX Exchange has recently announced the launch of their digital securities issuance platform, along with their inaugural STO.
CEO, Alexander Tkachenko, currently oversees company operations.
In Other News
Both, VNX Exchange and Sumsub, have found themselves in our headlines in the past. Now their past work has brought them together, as they work with one another moving forward. The following articles touch on past events pertaining to each company.