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SEC Continues Enforcement Push against ICO Issuers by Imposing Penalty Against Unikrn of Substantially All its Assets

Sep.21.2020

On September 15, 2020, the SEC issued a cease-and-desist order (the “Order”) settling charges against Unikrn Inc., an international eSports gaming and gambling platform established in 2014, for conducting an unregistered initial coin offering in 2017. As part of the settlement Unikrn agreed to pay a penalty of $6.1 million which represents “substantially all of the company’s assets.” On the same day that the settlement was announced, SEC Commissioner Hester M. Peirce, also known as Crypto Mom, issued a very rare, yet not surprising, public dissent statement stating that she does not agree with her “colleagues’ opinion that Unikrn’s token offering constituted a securities offering.” She also took issue with the fact that the settlement amount “is effectively forcing the company to cease operations,” and renewed her call for a three-year regulatory safe harbor during which time issuers like Unikrn can “develop and refine their platform.” Commissioner Peirce warned that the SEC’s failure to “experiment with new approaches to regulation” risks stifling innovation, the consequences of which will be endured by future generations.

In addition to the foregoing, this settlement is significant for the following reasons:

First: This is the first post-Telegram settlement that implicitly incorporates the theory developed in that case: that some SAFTs are not exempt from registration under the Securities Act of 1933.

Second: This is the second SEC settlement with a crypto company for violations of Section 5(a) and 5(c) of the Securities Act that does not require that the issuer remedy its violations through a rescission offering. Instead, like its settlement with BitClave PTE Ltd, the SEC required Unikrn to pay a fine that is to be placed into a fund to compensate harmed investors for their losses.

Third: The SEC once again affirmed its position that an issuer’s marketing statements can override contractual language stating that purchasers were buying tokens for their utility.

For more information, please contact the professional(s) listed below, or your regular Crowell & Moring contact.

Michelle Ann Gitlitz
Partner – New York
Phone: +1 212.895.4334
Email: mgitlitz@crowell.com
Richard B. Holbrook Jr.
Partner – Washington, D.C.
Phone: +1 202.508.8779
Email: rholbrook@crowell.com
Jorge Pesok
Counsel – New York
Phone: +1 212.803.4073
Email: jpesok@crowell.com