With TokenLot, the SEC has closed a distributor secondary market operator for ICO coins. In a settlement with the SEC, the operators also have to pay a fine because they have operated a regulated business without the corresponding SEC permission. This was the second time this week that a crypto business had been closed down by the agency in addition to the Californian Crypto Asset Management (CAM).
The Securities and Exchange Commission (SEC) continues its crackdown on the crypto-sector and recently announced that TokenLot LLC, a self-described “ICO Superstore,” and its owners will settle charges that they acted as unregistered broker-dealers. This is again a precedent because it’s the first-ever case in which the SEC penalizes a crypto-trader after the agency issued its The DAO Report in 2017 cautioning that those who offer and sell digital securities must comply with the federal securities laws.
According to the SEC’s order, TokenLot, Lenny Kugel, and Eli L. Lewitt promoted TokenLot’s a platform for purchasing ICO coins and also offered a secondary trading facility. Michigan-based TokenLot received orders from more than 6,100 retail investors and handled more than 200 different digital tokens, which the SEC found included securities. Hence, TokenLot operated as financial intermediar and distributor for ICO’s.
Their business required TokenLot, Kugel, and Lewitt to be registered with the SEC as broker-dealers, but failed to do so. TokenLot operated from July 2017 through late February 2018. In response to the SEC’s investigation, TokenLot voluntarily began winding down and refunding investors’ payments for unfilled orders. TokenLot, Kugel, and Lewitt also were charged with violating the registration provisions in connection with their conduct.
“U.S. securities laws protect investors by subjecting broker-dealers and other gatekeepers to SEC oversight, including those offering ICOs and secondary trading in digital tokens,” said Stephanie Avakian, Co-Director of the SEC’s Enforcement Division. “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.”
“The penalties in this case reflect the prompt cooperation and remedial actions by TokenLot, Kugel, and Lewitt,” said Steven Peikin, Co-Director of the SEC’s Enforcement Division. “TokenLot, Kugel, and Lewitt provided valuable information to Commission staff, stopped the conduct, and refunded money to investors.”
In the settlement with the SEC, TokenLot, Kugel, and Lewitt 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.