Regulation

SEC Halts Texas Financial Firm’s ‘Illegal’ ICO

In an effort to stop an “illegal offering of securities,” the U.S. Securities and Exchange Commission (SEC) has filed a complaint against a Dallas-based financial firm seeking to launch what might be the largest initial coin offering (ICO) in history. In addition, the agency was able to freeze the company’s assets and those of its two co-founders, CNBC reported.

Filed last Thursday and unsealed on Monday (Jan. 29), the SEC’s complaint states that AriseBank “used social media, a celebrity endorsement and other wide dissemination tactics to raise what it claims to be $600 million of its $1 billion goal in just two months.” The complaint continues: “The ICO is an illegal offering of securities because there is no registration filed or in effect with the SEC, nor is there an applicable exemption from registration.”

In addition, the SEC alleges AriseBank “falsely stated that it purchased [a Federal Deposit Insurance Corporation]-insured bank, which enabled it to offer customers FDIC-insured accounts.” In response to the complaint, the firm said it amended its announcement about the bank. But two websites for the company were not available as of Tuesday morning, and CNBC could not reach the company’s lawyers for comment.

Along with the announcement of the complaint, the SEC said it has appointed a receiver to secure AriseBank’s cryptocurrency holdings, which include bitcoin, Litecoin, BitShares, Dogecoin and BitUSD.

The news comes as the SEC has grown increasingly wary of ICOs. During a speech in November, SEC Chief Jay Clayton said the tokens and coins sold in ICOs bear more than a passing resemblance to securities, and those who offer and sell securities in the U.S. must comply with federal securities laws. Simply calling a security a coin doesn’t change that, and the SEC has warned that cryptocurrency exchanges must register as national securities exchanges or obtain an exemption from registration.

In addition, the SEC has warned celebrities about endorsing ICOs. While Paris Hilton, Floyd Mayweather and others have promoted ICOs, regulators said in November that celebrities who promote coin offerings could be violating multiple laws, including anti-fraud regulations and rules that govern investment brokers.

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