The Securities and Exchange Commission (SEC) filed an Administrative Proceeding earlier this week regarding an initial coin offering (ICO) affiliated with SimplyVital Health – a company that pursued an ICO in late 2017 and early 2018. The SEC claims that SimplyVital sold unregistered securities. SimplyVital apparently sold “Health Cash” tokens (HLTH) in a crowdfunding round. The plan was to create 200 million HLTH tokens with a presale offering 40 million tokens to investors in a SAFT.
The SEC has now settled with the company.
A document posted on the SimplyVital Health website states the settlement with the SEC now allows management to “refocus on developing blockchain-based solutions to emerging value-based healthcare programs.”
CEO Kat Kuzmeskas stated:
“We are pleased to put this matter behind us and are looking forward to the next stage in SVH’s evolution. Recently, SVH launched its “sana” services design with the goal of enabling physicians participating in the Centers for Medicare and Medicaid Services value-based care program to provide improved care while minimizing financial penalties.”
According to the SEC filing:
“In total, from September 25, 2017, to April 3, 2018, SimplyVital raised more than 15,200 ETH (equivalent to approximately $6.3 million USD as of April 3, 2018) from 52 individuals or ICO pools who invested through the company’s pre-sale. Of the more than 15,200 ETH raised, at least 13,800 ETH (more than $5.2 million USD) came from purchasers with whom the company had not taken reasonable steps to verify accredited investor status.”
In January of 2019, SimplyVital announced it would not issue the HLTH tokens and all funds would be returned to investors. This decision came following outreach from the SEC staff.
The SEC reports that substantially all of SimplyVital’s assets have been returned to investors.
Importantly, the SEC has decided not to impose a civil penalty, in light of the actions taken by the firm.
This is not the first time the SEC has pursued an enforcement action by an ICO issuer with many prior settlements including a financial penalty and, in some cases, a requirement to file registration statements – a costly pursuit.
It is interesting to note the relatively mild actions by the SEC for a post- DAO report offering.
The seminal DAO report has been considered a line in the sand for ICO issuers with the Commission mainly pursuing post-DAO offerings or blatant acts of fraud. The DAO report was published by the SEC on July 25, 2017.
This approach by the SEC Enforcement Division may encourage other ICO issuers to proactively contact the Commission and possibly settle on similar terms.
The US ICO industry has largely accepted that almost all token offerings are securities and thus must adhere to existing securities law. ICOs have morphed into security token offerings (STOs) filed under one of three securities exemptions (Reg A+, Reg D, Reg CF). Some industry participants hope that Congress will take legislative action to create a safe harbor for utility token offerings similar to what is occurring in other global jurisdictions.
Several digital asset issuers have received No-Action letters regarding the issuance of a digital asset following direct communication with SEC staff. Most recently, Pocketful of Quarters received a No-Action Letter for the issuance of a token which was not deemed to be a security.
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