The U.S. Securities and Exchange Commission (SEC) has made a move against Quantstamp, Inc. (QSP), a San Francisco-based firm, for conducting an unregistered initial coin offering (ICO) involving crypto asset securities. As part of Quantstamp Settles SEC, Quantstamp has agreed to forfeit the profits from the ICO and pay a civil fine.
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The Controversial Quantstamp Settles SEC
- Quantstamp Settles SEC carried out its ICO between October and November 2017, raising over $28 million.
- The firm sold “QSP” tokens to approximately 5,000 investors globally, including those residing in the United States.
- Investors were led to believe that the funds raised would be used to develop and market an automated smart contract security auditing platform, subsequently increasing their tokens’ value.
|Quantstamp Settles SEC for Unregistered ICO of Crypto Asset Securities
|SEC penalizes Quantstamp, a San Francisco firm, for conducting an unregistered ICO
|The Controversial ICO
|Quantstamp to forfeit profits, pay fines totaling $3.5 million and compensate affected investors
|Quantstamp promised a smart contract security platform; aimed to list tokens on trading platforms
|Violation of Laws
|Failed to qualify for exemption; SEC deemed the offering as unregistered securities
|Terms of Settlement
|Quantstamp to forfeit profits, pay fines totaling $3.5 million, and compensate affected investors
|Quantstamp ceased major operations after completing its smart contract security platform
|Amanda Straub led the investigation; David Hirsch and Jorge Tenreiro supervised the case
Potential Market and Violation of Laws
- Quantstamp capitalized on the potential market for its proposed product and took steps to list the tokens on third-party digital asset trading platforms.
- However, the SEC discovered that Quantstamp did not qualify for any exemption, despite filing a Form D claiming that the sales of QSP were exempt under Rule 506(c) of Regulation D and Regulation S.
- Consequently, this violation resulted in the offering being deemed securities, in breach of federal securities laws requiring proper registration.
Terms of Settlement
- Quantstamp, without admitting or denying the SEC’s findings, agreed to a cease-and-desist order and agreed to pay a disgorgement amounting to $1,979,201, along with prejudgment interest of $494,314 and a civil penalty of $1 million.
- A Fair Fund was established to compensate the affected investors.
- Furthermore, Quantstamp Settles SEC to transfer all remaining QSP under its control to the Fair Fund administrator for permanent disposal or destruction.
Following the settlement, Quantstamp, which completed its automated smart contract security auditing platform in June 2019, ceased active operations and considerably reduced its support for the platform.
SEC’s Investigation and Supervision
- The SEC’s investigation was spearheaded by Amanda Straub of the Enforcement Division’s Crypto Assets and Cyber Unit.
- The case was supervised by Crypto Assets and Cyber Unit Chief David Hirsch and Deputy Chief Jorge Tenreiro.
Frequently Asked Questions(FAQ)
Q1. What is the reason for the SEC’s action against Quantstamp?
As part of Quantstamp Settles SEC, Quantstamp has agreed to forfeit the profits from the ICO and pay a civil fine. for conducting an unregistered initial coin offering (ICO) involving crypto asset securities.
Q2. How much money did Quantstamp raise through its ICO?
Quantstamp raised over $28 million through its ICO held in October and November 2017.
Q3. How many investors participated in Quantstamp’s ICO?
Approximately 5,000 investors worldwide, including those from the United States, participated in Quantstamp’s ICO.
Q4. What did Quantstamp promise to do with the funds raised from the ICO?
Quantstamp promised to use the raised funds to develop and market an automated smart contract security auditing platform.
Q5. What penalties did Quantstamp agree to pay as part of the settlement?
Quantstamp agreed to pay a disgorgement of $1,979,201, prejudgment interest of $494,314, and a civil penalty of $1 million as part of the settlement with the SEC.