The Securities and Exchange Commission (SEC) has charged Sergii Grybniak, the founder of the initial coin offering (ICO) project Opporty, according to a Jan. 21 press release. Despite raising approximately $600,000, the commission targeted Grybniak for falsely declaring the project as “100% SEC compliant.”
Opporty launched its ICO between September and October 2018. The project purported to provide a “blockchain-based ecosystem for small businesses and their customers,” primarily in the United States. The platform was meant to be a place where small businesses could list their services and enter into an agreement via smart contracts. The ICO for the OPP token raised $600,000 from approximately 200 investors, some of whom were located in the U.S. While the SEC’s primary charge is for conducting an unregistered sale of securities, it also claims that the project made many misleading and false statements to encourage investment. Among them, Opporty claimed to have onboarded thousands of “verified providers” to do business on the platform, the majority of which “had expressed no such willingness,” the SEC complaint reads.
A claim of having more than 17 million businesses in its database was revealed to be a simple purchase of a third-party catalog. Finally, the SEC alleges that the project lied about a partnership with a “major software company.” The accused founder is a resident of Brooklyn, against whom the SEC seeks injunctions against future digital offerings, the return of all ICO money and civil penalties.
The case against Opporty is an outlier given the caliber of projects previously targeted by the SEC. Notable cases include the litigation for Telegram’s $1.7 billion ICO, Kik’s offering for $97 million, and recently, Boaz Manor’s $30 million token sale. By contrast, other projects received far more lenient treatment. The SEC settled with EOS parent company Block.one for $24 million, out of a $4 billion ICO. Debates around XRP’s security status did not yet result in an investigation by the regulator.
Other projects, such as TurnKey Jet, received no-action letters by the SEC. While the SEC pledged to offer more lenient and flexible treatment to crypto projects in 2020, it appears that some projects will remain under scrutiny. One possible distinction for Opporty is that, in addition to offering unregistered securities, the project allegedly lied about its achievements. In addition, unlike many similar ICOs, the offering did not explicitly exclude U.S. investors from participating.
SEC Votes On Faster Review Process
The United States Securities and Exchange Commission (SEC) announced it would be streamlining the application process for investment companies, potentially resulting in expedited crypto and blockchain firms operating in a “more efficient and less costly manner.” In a July 6 announcement on the SEC website, the Commission said it had voted to adopt rule amendments for an expedited review process for companies under the Investment Company Act. In addition, the SEC referred to a “new informal internal procedure” for any other applications that did not qualify for this expedited process.
The announcement said it made the changes for a “more efficient” application process, and to provide “additional certainty and transparency.” The SEC said granting such exemptions could provide “important economic benefits to funds and their shareholders.” “The application process under the Investment Company Act is an important component of our regulatory structure,” said SEC Chairman Jay Clayton. “The changes approved today will modernize and streamline this process, resulting in improved transparency, reduced costs, and a more efficient use of our staff’s resources.” As part of the rules under the Investment Company Act of 1940, any company applying for a listing with the SEC faces a number of challenges to operate legally. The SEC said these changes would be effective 270 days following their publication in the Federal Register.
The Commission has been very hesitant to sign off on Bitcoin exchange-traded funds (ETFs), including that of New York-based WisdomTree. Arca Labs, running its ArCoin on the Ethereum blockchain, speculated that no platform will be available to trade its fund through any major securities exchange registered with the SEC. According to the new amendments, funds including EFTs that have required an exemption from the SEC in order to operate could qualify for an expedited review. The fund would need to file a third application “substantially identical” to others granted relief within three years. The SEC stated that in this case, the Commission will provide notice to an applicant within 45 days of the date of filing provided the company responds within 30 days. Reportedly, the review process for a typical IPO application with the SEC comprises three rounds of inquiries and lasts between one and two months. In January, Grayscale Bitcoin Trust became the first digital assets vehicle reporting to SEC standards following its application in November.
Philippine SEC Warns Public About Cryptocurrency Schemes
The Securities and Exchange Commission (SEC) of the Philippines has warned the public against individuals and groups engaged in unauthorized crypto investments and trading, according to an announcement on July 1. The Philippine SEC warned those who were involved in crypto schemes could face a fine or 21 years of imprisonment or both. It explained that:
“A maximum fine of P5 million or imprisonment of 21 years or both await those who act as salesmen, brokers, dealers or agents of entities engaged in unauthorized investment schemes[…] The Bayanihan to Heal As One Act, also punishes those participating in cyber incidents that make use or take advantage of the current crisis arising from the COVID-19 outbreak to prey on the public through scams, phishing, fraudulent emails, or other similar acts.”
The Philippine authorities also listed three unauthorized crypto Ponzi schemes, one of which uses a protocol based on Ethreum blockchain: Forsage, RCashOnline and The Saint John of Jerusalem Knights of Malta Foundation of the Philippines, Inc. According to the Philippine SEC, both Forsage and RCashOnline lack the necessary licenses to operate. Hence, they are not allowed to take investments from the public or issue investment contracts and other forms of securities. Forsage, the Philippine SEC said, is a crowdfunding platform based on the Ethreum blockchain and active income is generated depending on the number of referrals and membership fees someone gathers. Since it provides smart contracts, the Philippine SEC noted Forsage then provides an investment contract that has to be approved by the regulator. Forsage is also not in the list of virtual currency exchanges registered with the Philippine central bank. Saint John of Jerusalem Knights of Malta Foundation, although it was registered with the SEC, it didn’t comply with its reportorial requirements and was revoked over 17 years ago.
All three warning projects have one thing in common: they are Ponzi schemes by nature. According to the statement, other than lacking the necessary licenses, Forsage’s compensation plan resembles a Ponzi scheme, where investors are paid using the contribution of new investors. RCashOnline relies heavily on recruiting members in exchange for high monetary rewards rather than on selling products. The SEC warned that if a company’s registration has been revoked, such as Saint John of Jerusalem Knights of Malta Foundation, other than for the purpose of liquidation, any other activities are illegal.
Rumor That Russia Will Investigate an Allegedly Fraudulent TON Offering in UK
Shortly after lifting the country’s Telegram ban, Russian authorities began investigating potentially fraudulent offerings involving the company’s unlaunched token, Gram. The token was at one time meant to serve a new blockchain ecosystem known as the Telegram Open Network, or TON. Reports indicate that Russian prosecutors are set to investigate a British firm that allegedly sold fraudulent tokens related to Telegram’s terminated blockchain project. The news was reported on July 3 by the local news agency, Baza.io.
According to the report, the action was brought to a local investigative committee by “several Russian entrepreneurs” that claimed to have purchased $11.7 million in Gram tokens. Telegram CEO Pavel Durov officially announced closure of the TON project on May 12. At that time, the Russian investors reportedly attempted to terminate their contract with the British company. Allegedly having Russian roots itself, the unnamed British firm reportedly wrote off $1.5 million in commissions, having returned just $10.2 million to investors, according to Baza.
This news comes soon after Telegram apparently settled its long-running legal battle with American authorities over the company’s $1.7 billion initial coin offering, or ICO. The ICO involved roughly $400 million in investments from United States citizens. On June 26, the U.S. court’s final judgment required Telegram to return $1.2 billion to investors. Telegram purportedly has already repaid the amount, with some U.S. investors confirming that they received a 72% refund. This amount is in line with Telegram’s original reimbursement scheme.
Russia’s interest in Gram comes against the backdrop of some meaningful regulatory changes. After two years of unsuccessful efforts to block Telegram messenger in the country, Russian authorities suddenly decided to lift the ban on June 18. The decision came just a few weeks before Russia conducted a seven-day long constitutional vote — the results of which could potentially allow President Vladimir Putin to extend his 20-year rule until 2036.