On July 14, 2021, the US Securities and Exchange Commission (SEC or Commission) settled the charges against Blotics, Ltd., f / d / b / a Coinschedule Ltd. (Coinschedule), the UK based operator of Coinschedule.com. a now-defunct website promoting digital asset offerings.1 The SEC sued Coinschedule for violating the anti-touting provisions of Section 17 (b) of the Securities Act of 1933 (the Securities Act). Section 17 (b) makes it illegal for anyone to advertise a security without disclosing that they received consideration or the amount of that consideration.2 Although the SEC has historically filed anti-advertising charges against website owners 3 this is the first time the SEC has brought anti-touting charges against a digital asset website operator. Previous anti-touting measures in the area of digital assets were raised against individuals rather than website or platform operators
Significantly, Commissioners Hester Peirce and Elad Roisman issued public dissent against the Order.5 The dissent criticizes the Order’s failure to cite which digital assets listed on Coinschedule.com were securities and is asking the SEC to do so Address the current lack of clarity on the application of federal securities laws to digital assets.
According to the regulation, Coinschedule owned and operated a website that published over 2,500 different offers of digital assets from 2016 to August 2019. The information on Coinschedule’s website was available to US persons, who made up a significant proportion of the website’s users during that period.
Coinschedule generated revenue primarily from token issuers who paid to “list” their token offerings on the website. Coinschedule offered the issuers tiered “marketing packages” in which the issuers would receive more advertising and more prominent placement on the website for higher fees. Coinschedule also offered issuers “additional” services for additional compensation, including introductions to digital asset trading platforms. Issuers and others could also purchase general advertising space on the website.
Coinschedule claimed to conduct due diligence on each of the offers profiled on its website and gave each offer a “Trust Score” based on a “proprietary algorithm” that determined the “credibility” of the offer and on the Coinschedule website has been published. Coinschedule also provided guidance to issuers who purchased Coinschedule marketing packages on how to increase their trust score.
Coinschedule has never disclosed to its website visitors the consideration it received from the issuers in order to “list”, profile or otherwise advertise their tokens. SEC officials appeared to have a particular problem with Coinschedule providing a trustworthy value to issuers and other services without sufficient disclosure to users, noting that “Coinschedule presented potential investors with seemingly independent profiles of token offerings, even though they were actually using tokens Issuers were bought and paid for. ”6 The SEC concluded that the tokens posted on the website contained digital assets and that Coinschedule had violated the anti-touting provisions of Section 17 (b) of the Securities Act. Coinschedule has been ordered to pay $ 43,000 in disgorgement plus pre-trial interest and a $ 154,434 fine.
The central theses
As discussed below, key lessons from the regulation include (1) Commissioners Peirce and Roisman’s “call to action” for the SEC to update the unclear regulatory status of digital assets, (2) the use of anti-touting provisions to commence a lawsuit against Coinschedule; and (3) exercise the SEC’s jurisdiction over non-US persons.
1. Call for action from Commissioners Peirce and Roisman
As noted in the dissenting opinion of Commissioners Peirce and Roisman, the regulation does not specify which assets posted on Coinschedule.com were securities. Instead, the Order concludes, without further analysis, that “[t]The digital tokens published by Coinschedule included those offered and sold as investment contracts that are securities under Section 2 (a) (1) of the Securities Act in the Digital Assets Commission’s Investment Contract Findings and Analysis Would Be Good For All do “and that”[o]One of the ways to solve the problem could be to develop a safe haven along the lines proposed by Commissioner Peirce that would allow token offerings to be carried out subject to a range of bespoke protections for token buyers. ”8 The dissent notes further states that “in this void” [of clear Commission-level guidance], Litigation and settled enforcement actions by the Commission have become the first port of call. ”9
2. The use of the anti-touting provisions to bring a lawsuit against Coinschedule
The ordinance shows that the SEC will use all tools at its disposal to prosecute conduct that it believes may violate federal securities laws. The SEC’s decision to impose anti-touting fees is noteworthy given that charges in the digital asset arena previously followed significantly different factual patterns. In particular, the SEC has previously brought charges against well-known public figures who used their celebrity status to post Initial Coin Offerings (ICOs) without disclosing the compensation received from the issuers.10 As a result, the use of advertising violations is in This case on a website owner is a departure from previous enforcement activities related to a digital asset.
3. Extraterritorial Scope of Jurisdiction of the SEC
The Order’s extraterritorial scope also serves as a useful reminder as Coinschedule was based in the United Kingdom rather than the United States. While the Internet can be a useful tool for accessing a wide user base, it can also be used to bring foreign companies into the extensive scope of SEC jurisdiction that allows a website to be accessed by US persons. The regulation explicitly states that “a significant portion of the web traffic on the Coinschedule platform came from the United States” before action was taken “to deter and prevent US persons from viewing its content”. This isn’t the first time the SEC has exercised extraterritorial jurisdiction over digital assets. In the case of SEC v. Telegram Group Inc. et al. The SEC issued an injunction to halt the supply of Grams, a security for digital assets, to U.S. and non-U.S. investors, as the intended resale of Grams by non-U.S. investors in the secondary market could prevent them Potentially available to US buyers.11 Companies operating outside of the United States should therefore consider allowing US persons to access their website or platform if they engage in conduct that may result in US securities laws .
15 USC § 77q (b).
See, for example, Complaint, SEC v The Investors Registry, LLC et al., Civil Claim No. 2: 12-cv-02214-MEA (D. Ariz. 2012); SEC Litigation Release, SEC Accuses Arizona Man of Unregistered Brokerage and Unlawful Advertising, LR-22511 (Oct. 17, 2012), https://www.sec.gov/litigation/litreleases/2012/lr22511.htm (An An Arizona man profiled Microcap issuers by posting information on their member-only website and emailing subscribers to his website where he received consideration from multiple issuers.); Complaint, SEC against Gun Soo Oh Park et al., 99 F.Supp.2d 889 (ND Fig. 2000); SEC Litigation Release, Yun Soo Oh Park and Tokyo Joe’s Societe Anonyme Corp., LR-16925 (March 8, 2001), https://www.sec.gov/litigation/litreleases/lr16925.htm (While the Tokyo Joe matter a Website operator who charged investors (instead of issuers) for advice on certain stocks, the complaint alleges that in at least one case Park indirectly received compensation from the issuer of a stock it recommended without receiving it To disclose compensation.); Complaint filed by the SEC against Stockstowatch.com, Inc. et al., Civil Claim No. 98-2198-CIV T-26B (MD Fl. 1998); SEC Litigation Release, SEC Charges Internet Stock Touter with Securities Fraud, LR-15956 (October 27, 1998), https://www.sec.gov/litigation/litreleases/lr15956.txt (A Florida man received shares in companies which he has published on his website without informing the users.).
See e.g. In the Matter of Steven Seagal (February 27, 2020), https://www.sec.gov/litigation/admin/2020/33-10760.pdf; Floyd Mayweather Jr., November 29, 2018, https://www.sec.gov/litigation/admin/2018/33-10578.pdf; In the Khaled Khaled case (November 29, 2018), https://www.sec.gov/litigation/admin/2018/33-10579.pdf; see also Public Statement, SEC Statement Dring Warning Around Celebrity Backed ICOs (November 1, 2017), https://www.sec.gov/news/public-statement/statement-potentially-unlawful-promotion-icos.
See note 5 above.
See note 4 above.
SEC v Telegram Group Inc. et al., 2020 WL 1547383 under * 1.