The state of Massachusetts has ordered five ICOs to shut down after they were determined to be offering unregistered securities. On Tuesday, Massachusetts Secretary of State William Galvin ordered 18moons, Across Platforms, Mattervest, Pink Ribbon ICO, and Sparkco to cease their ICO campaigns following investigations into each company.
ICOs are essentially crowdsales intended to launch an unregistered, and, therefore, illegal investment scheme. All five companies were found in violation of Massachusetts’ ‘General Laws,’ which define securities as stocks, bonds, or investment contracts that guarantee a financial return. All five are further required to provide a list of every investor and return funds to all investors within 75 days.
Investigations have been suspended, but, if any of the five companies fail to comply with the order, the investigation into that company will be reopened and law enforcement will be brought in.
The ICO world is full of bandwagoners who either don't understand financial regulation or are running scams. Organizers of each of the five shuttered ICOs had argued that their digital coins weren’t subject to securities laws because their issuance was made as a utility, where contributors acquire certain rights to use a service. Various questionable token use cases were proposed:
- 18moons, in Newton MA, planned to sell up to $10 million worth of “Planet Kids Coins” purportedly to support the production and distribution of children’s programming.
- Across Platforms, in Boston, planned to sell tokens somehow connected to its ClickableTV pay-per-click TV advertising platform.
- Mattervest, in Belmont MA, planned to use investor funds for purchases of other cryptocurrencies.
- Pink Ribbon ICO, in Marston Mills MA, claimed to support “women and families facing financial burdens from cancer.”
- SparkCo Inc., in Cambridge MA, planned to sell up to $18 million worth of a digital coin called Librium to create a “Hybrid SaaS marketplace and freelance platform.”
Secretary of State Galvin’s office recently put together a team of enforcement attorneys to police ICOs. Galvin said upon the issuance of the cease and desist orders: “I encourage anyone in Massachusetts who is thinking of investing in these new initial coin offerings to make sure the people they are giving their hard-earned money to are legitimately doing business. Do not be fooled by get-rich schemes trying to capitalize on the current Bitcoin craze. An offering done to avoid registration with regulators should be seen as a red flag, and you should contact my office before investing.”
Though the ICOs have been ordered to stop selling unregistered or non-exempt securities within the state of Massachusetts, all are able to register their tokens as securities and apply to sell "exempt from registration securities."
The actions by Massachusetts are part of a growing international clampdown on ICOs that shatters the core of a dubious legal theory that allowed dozens of startups to raise hundreds of millions of dollars around the world last year. Though there still aren't many rules surrounding ICOs, increasing regulatory enforcement is causing many to think twice before rushing in.
By: BGN Editorial Staff