September 14, 2018

SEC Shuts Down Token-buying Platform and Charges Unregistered Owners


The US Securities and Exchange Commission (SEC) has recently charged TokenLot, a platform allowing users to buy tokens during ICOs, with not complying with their federal securities laws.

The folks at the US Securities and Exchange Commission (SEC) seem to be busy bees. From rejecting Bitcoin ETF proposals to actively cracking down on fraud, the commission is definitely working hard. Just recently we reported on how the regulator also suspended two exchange-traded notes (ETNs), one for Bitcoin and the second for Ethereum.

The latest move sees the commission charge TokenLot LLC with operating as unregistered broker-dealers. In a press release, the charge alleges that the platform and its owners were selling digital tokens, deemed securities by the SEC, without being registered to do so.

SEC Cracks its Whip

Lenny Kugel and Eli L. Lewitt reportedly promoted the platform as a place for interested parties to buy tokens during ICOs and to take part in secondary trading. TokenLot even described itself as being an “ICO Superstore” as they managed over 200 different tokens. However, some of these are recognized as securities according to the SEC.

The platform, which launched in July last year, garnered plenty of interest before it closed in February. Over 6,100 investors placed orders with TokenLot, the bulk of which happened after the regulator issued their DOA Report stating the legal requirements that platforms need to adhere to. In addition, the commission charged the platform, Kugel, and Lewitt with “violating the registration provisions in connection with their conduct”.

The Co-Director of the SEC’s Enforcement Division, Stephanie Avakian, explained:

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. We continue to encourage those developing digital asset trading businesses to contact the SEC staff for assistance in analyzing registration and other securities law requirements.

Following Orders and Refunding Clients

While neither Kugel or Lewitt have admitted or denied any wrongdoing, they have been adhering to the SEC’s remedial requests with regard to refunding clients for a total amount of nearly $480,000. They will also pay $90,000 in penalties and destroy any remaining digital assets. According to the SEC’s statement, the two will also be subject to penny stock bars, which means that they will be prohibited from acting as promoters or be a part of activities involving a broker for trading. They also have an investment company prohibition for at least three years.

Steven Peikin, another Co-Director of the SEC’s Enforcement Division, had nothing but good things to say about Kugel and Lewitt’s approach to the commission’s orders:

The penalties, in this case, reflect the prompt cooperation and remedial actions by TokenLot, Kugel, and Lewitt. TokenLot, Kugel, and Lewitt provided valuable information to Commission staff, stopped the conduct, and refunded money to investors.

Credit: Live Bitcoin News

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