On May 28, 2020, the U.S. Securities and Exchange Commission announced charges against blockchain services company BitClave PTE Ltd. for conducting an unregistered initial coin offering of digital asset securities. 

In June 2017, BitClave began marketing the development of a platform called the BitClave Active Search Ecosystem (“BASE”). BitClave advertised that on BASE, once developed, customers would receive a digital asset the company created, CAT, in exchange for viewing and interacting with targeted ads. Around the same time, BitClave began marketing an ICO through which it would sell CAT to raise money for the project to develop BASE.

BitClave publicly announced a so-called “pre-sale” phase of the offering from July 25, 2017 through August 1, 2017.  BitClave conducted the final phase of the offering on November 29, 2017 and announced that it met its “hard cap” of $25.5 million total raised within 32 seconds of the official start of this phase of the sale.

According to the SEC’s order, as explained in its offering materials, BitClave planned to use the ICO proceeds to develop, administer, and market a blockchain-based search platform for targeted consumer advertising.  BitClave emphasized its expectation that the tokens would increase in value, and took steps to make the tokens available for trading on third-party digital asset trading platforms after the ICO.  The order finds that BitClave failed to register their offers and sales of CAT, which constituted securities.  CAT has since been removed from many of the third-party trading platforms, and BitClave is currently winding down its operations and does not plan to continue developing or supporting the platform. 

The SEC’s order finds that BitClave violated the registration provisions of the federal securities laws.  Without admitting or denying the SEC’s findings, BitClave agreed to pay disgorgement of $25,500,000, prejudgment interest of $3,444,197, and a penalty of $400,000.  The order establishes a Fair Fund to return monies paid by BitClave to injured investors.  BitClave also agreed to transfer all remaining CAT in its control to the fund administrator for permanent disabling, publish notice of the order, and request removal of CAT from all digital asset trading platforms. 

According to an article in Cointelegraph, it seems unlikely that the settlement amount will ever be paid.

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David Zaslowsky has a degree in computer science and, before going to Yale Law School, was a computer programmer. He is currently the Chairman of the Litigation Department of the firm’s New York office. His practice focuses on international litigation and arbitration. He has been involved in cases in trial and appellate courts across the United States and before arbitral institutions around the world. Many of David’s cases, including some patent cases, have related to technology. Since 2008, David has been included in Chambers for his expertise in international arbitration.