Cryptocurrency exchange Coinme has agreed to pay close to $4 million to settle charges from the U.S. Securities and Exchange Commission (SEC) that it held an unregistered security offering in 2017, the SEC said in a press release on 28 April.
According to the announcement, the U.S. securities regulator had alleged that Coinme, its subsidiary Up Global SEZC, and the CEO of both companies, Neil Bergquist, offered investors unregistered securities between October and December 2017 through an initial coin offering (ICO) for the UpToken (UP). The three entities agreed to settle the SEC charges, with Up Global paying a $3.52 million penalty, Coinme a $250,000 penalty, and Bergquist a $150,000 penalty.
The SEC order also accused the parties of making “false and misleading statements” regarding the demand for UP — which was supposed to provide its holders with benefits such as discounted fees and 1% cashback when using Coinme’s ATMs — and the amount raised in the ICO. The two companies had claimed during the ICO that they would need to purchase UP from the open market to fund their ATM rewards program, creating a constant demand for the token, but the SEC noted:
“Bergquist and Up Global took steps before and throughout the ICO to obtain an UpToken supply that would substantially reduce Coinme’s need to purchase UpToken after the ICO for the ATM rewards program.”
The SEC also alleged that the two companies used several transactions to “knowingly or recklessly” create an impression of demand for UP tokens. In one example Coinme sent around 160 BTC to an Up Global wallet used to receive funds from the ICO, after which Up Global sent back around 14.5 million UP to Coinme, creating the illusion a third party had made a large purchase.
Coinme, Up Global, and Bergquist neither confirmed nor denied the securities regulator’s allegations, but rather agreed to settle the charges, and cease and desist from future violations of those provisions. The SEC order also barred Bergquist from acting as an executive of a public company for the next three years.