US SEC Seeks $16 Million Penalty from Token Sales Platform Operator

The United States Securities Exchange Commission (SEC) is seeking a default judgement against token sale platform ICOBox and its founder Nikolay Evdokimov.

Documents filed with the Central District Court of California on Jan. 9 order the defendants to pay over $16 million in disgorgement to the agency within 14 days of the judgement’s entry. 

In a complaint filed on Sept. 18, 2019, the SEC had sued ICOBox and Evdokimov for operating an unregistered securities offering of roughly $14.6 million worth of digital assets in 2017, and operating as an unregistered securities broker.

According to yesterday’s proposed judgment, the SEC’s disgorgement penalty is calculated on the basis of $14.6 million in the firm’s ill-gotten gains plus prejudgement interest of just over $1.4 million. Evdokimov is personally ordered to pay a civil penalty of $189,426.

The SEC’s complaint against ICOBox

The SEC’s complaint in September alleged that ICOBox and Evdokimov facilitated the token sales of over 30 clients, who collectively raised over $650 million from investors. For its own operations, ICOBox purportedly raised $14.6 million in its own “ICOS” tokens from over 2,000 investors in the U.S. and worldwide.

ICOBox ostensibly did so in full knowledge of the SEC’s classification of certain digital tokens as securities offerings in the agency’s DAO Report of July 2017, having publicly discussed the report’s significance in an interview with Reuters as well as communications with investors.

ICOBox and its founder nonetheless failed to register their token sale platform or qualify its operations for any exemption from registration, instead attempting to claim that ICOS tokens were not securities or that they warranted an exemption due to “an unspecified utility.”

At the time of the September complaint, ICOBox’s operations were ostensibly still ongoing and the firm had expanded the scope of its services to support security token sales (STOs), thereby continuing to flout registration requirements under federal securities laws. 

The agency in 2020

Earlier this week, the SEC’s Office of Compliance Inspections and Examinations, identified new financial technologies including digital assets among its major concerns in the coming fiscal year.

In an interview Cointelegraph in Dec. 2019, SEC Commissioner Hester Peirce — a.ka. “Crypto mom” — advocated for a more flexible regulatory approach to crypto offerings, proposing that:

“The biggest thing the crypto community needs is a way to get from a securities offering to a utility token offering that is not covered by securities laws, or is not covered by the full panoply of the securities laws.”