Wednesday, April 3, 2019


Keeping with the theme of my prior post covering recent oversight and enforcement action by the Securities and Exchange Commission (SEC) of the cryptocurrency industry/exchanges, Gladius Network (an issuer of unregistered cryptocurrency tokens) recently reached a settlement with the SEC which avoided civil penalties entirely.

Gladius, a Washington D.C. firm dedicated to using the Ethereum Blockchain as a means of mitigating Distributed Denial of Serve attacks, raised over $12 million USD in an initial coin offering (ICO) in 2017 – the peak of the cryptocurrency investor craze. 

As SEC enforcement activity increased over the last several years, and the SEC maintained that most ICOs qualified as the sale of unregistered securities, Gladius decided to proceed with caution and self-reported its unregistered ICO to the SEC during the summer of 2018.  Gladius cooperated with the SEC’s investigation and agreed to take certain remedial actions, including registering its tokens as a security and repaying investors that requested their investments back.

Most significantly, however, is the SEC’s determination not to levy any civil penalties against Gladius. The SEC explained that “the SEC did not impose a penalty because the company [Gladius] self-reported the conduct, agreed to compensate investors and will register the tokens as a class of securities.” Robert Cohen, Chief of the SEC’s Cyber Unit, further commented that the case “shows the benefit of self-report and taking proactive steps to remediate unregistered offerings.”

The Gladius settlement follows similar enforcement actions initiated by the SEC in November 2018 against companies that conducted unregistered ICOs. In those instances, the companies did not self-report and were penalized by the SEC, sometimes to the tune of $250,000.

If nothing else, the Gladius case sends a clear and deliberate message that self-reporting to the SEC can result in meaningful cooperation credit – in particular the avoidance of hefty civil penalties. 

If you or your company are interested in learning more about the SEC’s guidance regarding cryptocurrency or ICOs and the recent regulatory activity, or have questions about how to make sure you are in compliance with securities law, the GPM team is here to help.

No comments :

Post a Comment