Blockchain security firm Quantstamp has settled with the U.S. Securities and Exchange Commission (SEC) over charges related to an unauthorized initial coin offering (ICO) that raised $28 million in 2017.

The SEC filed charges against the San Francisco-based firm for allegedly conducting an unregistered ICO of crypto asset securities, resulting in a settlement that requires Quantstamp to refund the ICO proceeds. 

As a result, the company has agreed to pay a disgorgement of $1,979,201, prejudgment interest of $494,314, and a civil penalty of $1 million.

Quantstamp Settles With SEC Over Regulatory Violations

According to the SEC’s complaint, Quantstamp raised over $28 million by selling “QSP” tokens to around 5,000 investors, including investors in the United States, in October and November 2017. 

The company allegedly planned to use the ICO proceeds to develop and market an automated smart contract security auditing platform. 

However, the SEC found that Quantstamp failed to register its offers and sales of QSP, which constituted securities and failed to qualify for any exemption to registration despite filing a Form D claiming that the unregistered sales of QSP were exempt under Rule 506(c) of Regulation D and under Regulation S.

The SEC’s order noted that Quantstamp emphasized the large market potential for the smart contract security auditing product it planned to develop, led QSP purchasers to expect that the value of their tokens would increase with the success of Quantstamp’s enterprise, and took steps to make the tokens available for trading on third-party digital asset trading platforms after the initial coin offering. 

Nevertheless, while Quantstamp completed its automated smart contract security auditing platform in June 2019, the order notes that it no longer operates nor lends substantial support to the platform.

Ultimately, the SEC’s settlement establishes a Fair Fund to return monies paid by Quantstamp to “injured investors” and requires the company to transfer all remaining QSP in its control to the Fair Fund administrator to be permanently disabled or destroyed. 

It’s important to note that the amount of funds available for distribution may be less than the original investment amount, due to factors such as the costs of administering the Fair Fund, the number of eligible investors, and the amount of funds available for distribution.

Additionally, Quantstamp must publish notice of the order on its website and convey the order to crypto trading platforms that make QSP available for trading.

Overall, the SEC’s order is likely to have a significant impact on Quantstamp’s future operations. The company will need to take steps to address the concerns raised by the SEC and ensure that it is fully compliant with regulatory requirements in the future.

Featured image from Unsplash, chart from TradingView.com