A self-described ICO Superstore and its owners agreed to settle charges that they acted as unregistered broker/dealers, according to the Securities and Exchange Commission. TokenLot, LLC was charged by regulators after selling digital tokens. The action marked the regulator’s first case of this nature after issuing a 2017 report on the topic, warning those who offer and sell digital securities must comply with federal securities laws.
In this case, the company’s website was promoted by owners Lenny Kugel and Eli L. Lewitt as a marketplace for purchasing initial coin offerings and as a secondary digital asset trading site, according to federal regulators. Among the orders received from approximately 6,100 retail investors were more than 200 different digital tokens, some of which the SEC concluded were securities. The business took profits on trades and a percentage of the money raised via ICOs, which required the company and its ownership to be listed as a b/d. It was not, according to the SEC.
The company operated from July 2017 through February 2018, largely after The DAO Report. Following the SEC’s investigation, the firm voluntarily closed operations and refunded investors with payments from unfilled orders. The company did not admit or deny the SEC’s findings, but did pay $471,000 in disgorgement and $7,929 in interest. Kugel and Lewitt agreed to pay penalties of $45,000 each, as well as agree to industry bars and an investment company prohibition. The company’s remaining inventory of digital assets will also be destroyed by an independent third party.
“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. Another co-director of the same division, Steven Peikin, confirmed that the penalities in the case were a reflection of the “prompt cooperation and remedial actions” taken by the company and its owners.
TokenLot did not comment on the settlement. On its website, the company noted it was closing because of “the ever-changing regulatory landscape of the cryptocurrency space in our jurisdiction.”