- The U.S. SEC has reached a $3.4 million settlement with Quantstamp for conducting an unregistered Initial Coin Offering in 2017.
- Quantstamp was accused of selling “QSP” tokens to more than 5,000 investors worldwide, violating federal securities laws’ registration provisions by failing to register these offers and sales.
- The firm intended to use the ICO proceeds, which totalled approximately $28.35 million, to develop and market an automated smart contract security auditing platform.
In a landmark move, the U.S. Securities and Exchange Commission (SEC) recently reached a settlement with Quantstamp Inc., a leading blockchain security company. The charges against Quantstamp stemmed from allegations of conducting an unregistered initial coin offering (ICO) back in 2017, which amounted to approximately $28.35 million.
According to the SEC’s announcement, the San Francisco-based firm conducted an ICO where they sold “QSP” tokens to more than 5,000 investors worldwide. This effort amassed close to $28.35 million in ether and stablecoin USD. However, it was found that Quantstamp failed to register these offers and sales, which constituted securities, leading to the violation of federal securities laws’ registration provisions.
Dissecting the Quantstamp Case
Quantstamp’s offering materials described the company’s plans to utilize ICO proceeds to develop and market an automated smart contract security auditing platform. The firm emphasized the large market potential for this product, leading QSP purchasers to expect that the value of their tokens would increase with the success of Quantstamp’s enterprise. Moreover, steps were taken to make the tokens available for trading on third-party digital asset trading platforms post-ICO.
It’s crucial to highlight here that Quantstamp, in determining whether a cryptocurrency is a security subject to securities laws, referenced the SEC’s Howey Test. This test, which has four prongs, is frequently used to establish whether there is an expectation of profits derived from the efforts of others, a common enterprise, or an investment of money.
The SEC’s Stance and Settlement Details
The SEC maintains a firm stance on protecting investors and maintaining fair, orderly, and efficient markets. By enforcing the federal securities laws, the SEC ensures that public companies take responsibility for their actions. The Quantstamp case illustrates the SEC’s commitment to these principles, as evidenced by the charges leveled and the ensuing settlement.
Quantstamp has agreed to settle the charges by disgorging proceeds from the offering, paying a civil penalty, and relinquishing control of all remaining QSP tokens to a Fair Fund administrator. The total settlement amounted to approximately $3.4 million, with a detailed breakdown of $1,979,201 in disgorgement, $494,314 in prejudgment interest, and a $1 million civil penalty.
The SEC established a Fair Fund to return money paid by Quantstamp back to investors, creating an avenue for those affected to regain their investments. In agreeing to these terms, Quantstamp has neither admitted nor denied the SEC’s charges.
Moreover, despite the company’s significant initial success in the crypto industry as a leading provider of security audits, Quantstamp no longer operates or lends considerable support to the automated smart contract security auditing platform it developed.
