SEC Charges ICO Token Sales Platform TokenLot as Unregistered Broker-Dealer

For the first time after the 2017 landmark DAO Report, the US regulator issued an order against an unregistered broker-dealer for selling cryptocurrency.

The US Securities and Exchange Commission (SEC) has penalized TokenLot, a company that had offered sales platform for tokens issued in the execution of an Initial Coin Offering (ICO) crowdfunding model, for working without securities registration, an SEC statement from Tuesday revealed. TokenLot, which had described itself as an ‘ICO Superstore’, cooperated with the Commission and refunded investor money.

“This is the SEC’s first case charging unregistered broker-dealers for selling digital tokens after the SEC issued The DAO Report in 2017 cautioning that those who offer and sell digital securities must comply with the federal securities laws,” the Commission explained.

TokenLot received more than 6,100 applications from retail investors who wanted to list their tokens on the company’s sales platform. The Michigan-based firm accepted 2000 of the projects and offered them profits based on a percentage of the money that TokenLot would raise during their respective ICO sales. The problem is that TokenLot had not filled for a securities registration even though the most of the company’s business occurred after the DAO Report, the SEC said.

Lenny Kugel, and Eli L. Lewitt, the company’s owners, cooperated with the US regulator and paid $471,000 in disgorgement, $7,929 in interest, and $45,000 each for breaching federal securities law. They also accepted the SEC ruling that an independent third party should destroy TokenLot’s remaining inventory of digital assets.

“TokenLot, Kugel, and Lewitt provided valuable information to Commission staff, stopped the conduct, and refunded money to investors,” Steven Peikin, Co-Director of the SEC’s Enforcement Division said in the statement.

Kugel and Lewitt’s cooperation with SEC does not mean that they admit or deny any wrongdoings, the SEC stated. They will be barred from securities investments for at least three years.

“Unfortunately, due to the ever changing regulatory landscape of the cryptocurrency space in our jurisdiction, we regret to inform you that we will be closing TokenLot,” the company explained in its website as at 13:00 UTC on Wednesday.

The SEC order against TokenLot came on the same day that a US judge gave the green light to federal prosecutors for continuing their investigations into two cryptocurrencies seen as securities as defined by the 1934 federal Securities Exchange Act.