Securities Regulation Daily ICO issuer should not have gambled on failure to register, SEC says
Tuesday, September 15, 2020

ICO issuer should not have gambled on failure to register, SEC says

By Amy Leisinger, J.D.

The gaming platform agreed to disable its tokens and pay a penalty of over $6 million for distribution to harmed investors.

The SEC has charged an online eSports gaming and gambling platform with conducting an unregistered initial coin offering of digital asset securities. To settle the matter, the company agreed to pay a $6.1 million penalty (substantially all its assets), which will be distributed to investors through a Fair Fund (In the Matter of Unikrn Inc., Release No. 33-10841, September 15, 2020).

In a related proceeding, the Washington State Department of Financial Institutions announced a settlement with Unikrn for violations of state registration provisions in connection with the offering.

"The securities registration and exemption framework is designed to ensure investor protection and access to material information, while also facilitating capital formation. Failure to follow this framework harms investors and our markets," said SEC Enforcement Cyber Unit Chief Kristina Littman.

Unregistered ICO. According to the SEC, between June and October 2017, Unikrn Inc. conducted a securities offering in two phases–a so-called pre-sale and an ICO in which it raised $31 million through the sale of UnikoinGold (UKG), a digital token. The Commission alleged that Unikrn represented to investors that they would be able to access a variety of products and services with their UKG tokens, including placing bets on professional eSports and video game matches, and that over time Unikrn planned to use the offering proceeds to make more features available and develop additional applications. The Commission stated that Unikrn promised investors that it would facilitate a secondary trading market for the tokens and that its efforts to increase usage would increase demand and, in turn, the value of the tokens. Unikrn offered and sold UKG as investment contracts and did register its offering or qualify for an exemption, the SEC alleged.

"Although the terms of the public token sale agreement required purchasers to agree that they were buying UKG tokens for their utility and not as an investment, Unikrn’s promotion of the [o]ffering to investors suggested otherwise, resulting in offering participants having a reasonable expectation of profit through Unikrn’s efforts to expand the token’s uses and increase its value," the SEC stated.

Sanctions. By this conduct, the SEC found that Unikrn violated the registration provisions of the federal securities laws. Without admitting or denying the Commission's findings, Unikrn agreed to cease and desist from further violations and pay a penalty of $6.1 million into a Fair Fund to return the money to injured investors. The company also agreed to disable the UKG, publish notice of the order, and request removal of the tokens from all digital asset trading platforms.

The release is No. 33-10841.

MainStory: TopStory Blockchain Enforcement FraudManipulation SecuritiesOfferings

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