Quantstamp is a Blockchain security firm that raised funds through an initial coin offering (ICO).  According to the SEC, in August 2017, Quantstamp released a White Paper with respect to its upcoming offering of a crypto asset called QSP, which described Quantstamp’s plans to develop a protocol on the Ethereum blockchain that would provide automated security audits of smart contracts (the “Protocol”).  The White Paper also described Quantstamp’s plans to implement a governance system “after the core features [of the Protocol] are implemented” by which users could vote on changes to the Protocol over time. The Protocol was undeveloped and the QSP tokens had no use at the time of the offering.  Quantstamp also began marketing the project and its upcoming sale of QSP tokens—which Quantstamp publicly explained would fund the development of the Protocol—on Quantstamp’s website, as well as online in press releases, blogs, and social media pages, all of which were available to U.S. persons.  Quantstamp  raised more than $28 million through the sale of QSP tokens to more than 5,000 investors.

According to the SEC, in public statements, Quantstamp emphasized the large market potential for the smart contract security auditing product it planned to develop, and led QSP purchasers to expect that the value of their tokens would increase with the success of Quantstamp’s enterprise.  Quantstamp also touted the credentials of and plans for its team, which included the founders, executives, employees, and advisors of the company.  Quantstamp provided a chart on its website reflecting that it would use 50% of the token sale proceeds for product development, 30% for marketing and community, 15% for administrative and general expenses, and 5% for security. The “Financial Planning” section of the White Paper stated that the number of engineers and staff members Quantstamp would hire, as well as the milestones for its product, marketing, and business plans, would depend on the amount of funds raised through the offering.

Quantstamp publicly released the first version of the Protocol in March 2018, six months after the Offering. It released an upgrade in September 2018, and a final version in June 2019, approximately eighteen months after the Offering. In total, Quantstamp used over $26 million of the Offering proceeds for the development of the Protocol. After the June 2019 final release, Quantstamp ceased further development of the Protocol, and no longer operates nor lends substantial support to the Protocol. QSP token holders have no voting rights or other means of control over the Protocol.

Based on these facts, the SEC said that Quantstamp offered and sold the QSP tokens as investment contracts, and therefore securities, under the Howey test.  No registration statement was in effect for Quantstamp’s offers and sales of QSP, nor were any exemptions from registration available, meaning that  Quantstamp violated Sections 5(a) and 5(c) of the Securities Act.

Without admitting or denying the SEC’s findings, Quantstamp consented to the entry of the SEC’s Order.  Quantstamp agreed to pay disgorgement of $1,979,201, prejudgment interest of $494,314, and a civil money penalty of $1,000,000 (for a total payment of $3,473,515).  It also agreed to a cease and desist order.  In addition, the Order provided for the establishment of a “Fair Fund” to receive the funds paid by Quantstamp and return them to affected investors. The company  also agreed to transfer its own QSP token holdings to the Fair Fund administrator, with the tokens set to be “permanently disabled or destroyed.”


David Zaslowsky has a degree in computer science and, before going to Yale Law School, was a computer programmer. 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. David has been included in Chambers for his expertise in international arbitration. He is the editor of the firm's blockchain blog.