In a significant development, the United States Securities and Exchange Commission (SEC) has reached a settlement with crypto company Quantstamp following allegations of securities law violations.
The SEC had charged Quantstamp with violating securities regulations, and the company has opted to settle the matter without admitting or denying the allegations.
As part of the settlement, Quantstamp has agreed to a cease-and-desist order and will make a payment of $1,979,201 as disgorgement, along with a prejudgment interest of $494,314. Additionally, the company will pay a civil penalty amounting to $1 million.
Quantstamp conducted an Initial Coin Offering (ICO) between October and November 2017, raising over $28 million by selling its native token, QSP, to nearly 5,000 investors, including those based in the United States.
The SEC contended that the QSP tokens qualified as securities under the Howey test, a key regulatory criterion, and that Quantstamp’s failure to register them constituted a violation of federal securities laws.
The company’s ICO introduced an automated smart contract security auditing platform, touting significant potential.
The SEC alleged that Quantstamp portrayed the success of its platform as a catalyst for a substantial increase in the value of QSP tokens, a representation that influenced investors’ purchasing decisions.
The Howey test, a legal benchmark for identifying securities transactions, comprises four key elements: investment of money, participation in a common enterprise, anticipation of reasonable profits, and reliance on the efforts of others for those profits.
The regulator acknowledged that Quantstamp had sought an exception from registering the QSP token offerings and sales, asserting that the sale to foreign investors was exempt from federal securities laws.
However, Quantstamp’s actions came into question as it sold tokens to non-accredited investors in the United States, thereby disqualifying itself from the exemption.
