The United States securities regulator has imposed fines of nearly $4 million on cryptocurrency exchange Coinme for allegedly offering unregistered securities and making “misleading statements” about its crypto token UpToken (UP)..
On April 28, The Securities and Exchange Commission (SEC) reported that it had resolved the charges against Coinme, its subsidiary Up Global SEZC, and the CEO of both companies, Neil Bergquist..
Up Global agreed to pay a $3.52 million fine, for which Coinme was also liable. Separate sanctions were also imposed against Coinme and Bergquist. of USD 250,000 and 150,000 respectively, which both have agreed to pay.
In your order, the SEC alleged that the UP Initial Coin Offering (ICO) of Coinme, Up Global and Bergquist between October and December 2017 was an investment contract under the Howey test and were subsequently unregistered security offerings.
The ICO raised about $3.6 million to expand the number of bitcoin (BTC) ATMs in Coinme’s fleet, adding 30 ATMs using ICO funding. UP holders received benefits such as discounted rates and 1% cashback paid in UP when using ATMs.
In January 2019, Coinme changed its offering and partnered with Coinstar to use its cash counting kiosks to facilitate cash-to-cryptocurrency transactions instead of its own ATMs. In July 2019 Coinme closed all of its own ATMs.
“There is currently no use for UpToken, and UpToken holders can no longer use UpToken to obtain the benefits that were described in the UpToken offering materials.”
The price of UP has experienced a significant decline since then; its market cap also fell to around $50,000 and 24-hour trading volumes hit just over $180.
Bergquist and Up Global also made “false and misleading statements” about the UpToken lawsuit and the amount raised in the offering.according to SEC.
Up Global said Coinme’s purchase of UP to fund its ATM rewards program would create steady demand for the token.but the SEC said:
“Bergquist and Up Global took steps before and during the ICO to obtain a supply of UpToken that would substantially reduce Coinme’s need to purchase UpToken post-ICO for the ATM rewards program.”
The SEC claimed that Coinme sent 160 BTC, valued at more than $1 million at the time, to an Up Global wallet used to receive funds from investors in the ICO.. Up Global returned around 14.5 million UP at a discount to Coinme, and the transaction “knowingly or recklessly” created the impression that a third party made a large purchase.
In another example, it was alleged that Bergquist negotiated a round-trip transaction of 500 bitcoin worth of UP tokens with an unnamed Hong Kong company, and that Coinme borrowed the funds to buy more UP at a discount. The transaction was also used to create a demand impression for the tokens..
The SEC said Bergquist neither admitted nor denied the regulator’s findings, agreed to settle the charges and was barred from acting as an executive of a public company for three years..
Cointelegraph reached out to Coinme for comment but did not immediately hear back.
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