The Securities and Exchange Commission (SEC) says that TokenLot, a self professed ICO Superstore, will settle charges regarding allegations the firm operated as an unregistered broker dealer.
The SEC notes this is the first case charging unregistered broker-dealers for selling digital tokens after the SEC issued The DAO Report in 2017. At the time of the DAO report, most industry followers viewed it as a shot across the bow – which was widely ignored.
According to the SEC’s Order, Michigan based TokenLot, along with principles Lenny Kugel, and Eli L. Lewitt promoted TokenLot as a way to purchase cryptocurrencies generated by initial coin offerings (ICOs). TokenLot also and engaged in secondary trading acting as a de facto exchange.
The SEC states that TokenLot received orders from more than 6,100 retail investors and handled more than 200 different digital tokens, at least some of which were determined to be securities. Neither Kugel nor Lewitt were registered with the SEC as broker-dealers.
TokenLot’s profits included trading profits and a percentage of the money that TokenLot raised for ICOs.
TokenLot operated from July 2017 through February, with most of its business occurring following The DAO Report on the applicability of securities laws to digital assets.
Once TokenLot became aware of the SEC investigation, TokenLot voluntarily began winding down and refunding investors’ payments for unfilled orders.
TokenLot, Kugel, and Lewitt were also charged with violating the registration provisions in connection with their conduct.
Without admitting or denying the SEC’s findings, TokenLot, Kugel, and Lewitt consented to the SEC’s order and agreed to pay $471,000 in disgorgement plus $7,929 in interest, and they will retain an independent third party to destroy TokenLot’s remaining inventory of digital assets.
Kugel and Lewitt also agreed to pay penalties of $45,000 each and agreed to industry and penny stock bars and an investment company prohibition with the right to reapply after three years.
Stephanie Avakian, co-Director of the SEC’s Enforcement Division, commented on the SEC enforcement action;
“US securities laws protect investors by subjecting broker-dealers and other gatekeepers to SEC oversight, including those offering ICOs and secondary trading in digital tokens. We continue to encourage those developing digital asset trading businesses to contact the SEC staff at FinTech@sec.gov for assistance in analyzing registration and other securities law requirements.”
Steven Peikin, co-Director of the SEC’s Enforcement Division, noted that the penalties assessed reflected the prompt cooperation by Kugel and Lewitt.
“TokenLot, Kugel, and Lewitt provided valuable information to Commission staff, stopped the conduct, and refunded money to investors.”
Earlier today, the SEC issued another enforcement action against a crypto hedge fund. The SEC said that Crypto Asset Management LP was operating as an unregistered investment company and “falsely marketed itself as the “first regulated crypto asset fund in the United States.”