Chalk one more up for initial coin offering (ICO) regulation.
Enigma MPC, a blockchain startup, settled with the SEC for conducting an unregistered sale of securities. The San Francisco-based startup conducted an offering of its ENG tokens in 2017 and raised $45 million from investors. As part of the settlement, Enigma will refund “harmed investors” and pay a penalty of $500,000 to the SEC. It will also register ENG tokens as securities and file periodic reports with the federal agency. Enigma is developing a product to conduct secret ICOs that add privacy to smart contracts used in an offering, masking the investor identity and token transfers between blockchain addresses.
A Textbook Case for Commissioner Peirce’s Proposal
News of the settlement comes close on the heels of SEC Commissioner Hester Peirce’s proposal to provide a three-year holiday from securities laws for ICO tokens.
Interestingly, Enigma’s ICO, which was conducted in Sep 2017, fits the bill for Peirce’s proposal. The company did not have a working product when its offering was conducted. The ENG token was to be used for purchase of crypto-investment data and for subscriptions to data sources within the network. In other words, it was meant to be a utility token meant for use within the network.
After conducting tests, Enigma launched its mainnet, a working version of its product, today. It also provided disclosures to investors in the form of a roadmap, product descriptions, and founder biographies. It boasts founders from MIT and an advisory board consisting of well-known scientists and investors. Enigma provided regular updates to investors through its blog in the interim between its ICO and launch.
During the cryptocurrency gold rush of Jan 2018, the price of a single ENG token skyrocketed from $0.44 to $7.8, creating a liquidity event for token investors and company founders. All in all, a $45 million raise for a $500,000 penalty is not a bad deal.
Peirce’s proposal may not be necessary, after all.