3 - 5 minute read
The US Securities and Exchange Commission (SEC) has fined Coinme, a crypto exchange, nearly $4 million for offering unregistered securities and making “misleading statements” about its crypto token UpToken (UP). The SEC said that Coinme, its subsidiary Up Global SEZC, and CEO Neil Bergquist agreed to pay the penalties. Up Global will pay the highest penalty of $3.52 million, while Coinme and Bergquist will pay $250,000 and $150,000, respectively. According to the SEC, the ICO of UP between October and December 2017 was an investment contract under the Howey test and an unregistered securities offering.
The ICO raised around $3.6 million to expand the number of Bitcoin ATMs in Coinme’s fleet, with which it added 30 ATMs using ICO funding. UP holders received benefits such as discounted fees and a 1% cashback paid in UP when using the ATMs. However, in January 2019, Coinme changed its offering and partnered with Coinstar to use its cash-counting kiosks to facilitate cash-to-crypto transactions rather than its own ATMs. By July 2019, Coinme shut down all of its ATMs. The price of UP has seen a significant drawdown since, with its market cap also falling to around $50,000, and 24-hour trading volumes topping just over $180.
Bergquist and Up Global also made “false and misleading statements” about the demand for UpToken and the amount raised in the offering, according to the SEC. Up Global said Coinme’s purchasing of UP to fund its ATM rewards program would create constant demand for the token, but the SEC said that Bergquist and Up Global took steps before and throughout the ICO to obtain an UpToken supply that would substantially reduce Coinme’s need to purchase UpToken after the ICO for the ATM rewards program.
The SEC claimed that Coinme sent 160 BTC worth over $1 million at the time to an Up Global wallet used to receive investor funds in the ICO. Up Global sent back around 14.5 million UP at a discount to Coinme, and the transaction “knowingly or recklessly” created the impression that a third party made a large purchase. In another example, it was claimed that Bergquist negotiated a 500 Bitcoin round-trip transaction of UP tokens with an unnamed Hong Kong company, with Coinme borrowing the funds to purchase further UP at a discount. The transaction was also used to create an impression of demand for the tokens.
The Bottom Line
The SEC has fined Coinme, its subsidiary Up Global SEZC, and CEO Neil Bergquist nearly $4 million for offering unregistered securities and making “misleading statements” about its crypto token UpToken (UP). Traders need to be cautious when investing in ICOs and research the company and its product thoroughly before investing. The penalties imposed on Coinme, Up Global, and Bergquist should serve as a warning to other companies looking to launch ICOs.