March 24, 2023

Securities Offerings: SEC Taking a Broad View

Earlier this week, the SEC announced charges against a “crypto asset entrepreneur” and three of his wholly-owned companies for what the SEC is saying were unregistered offers & sales of crypto asset securities, as well as market manipulation allegations based on purported “wash trades.” What’s interesting even if you’re not generally following the ins & outs of crypto is that in its 50-page (!) complaint – the SEC has taken an expansive view of the type of activity that violates Sections 5(a) and 5(c) of the Securities Act, which require issuers to register offerings of securities through an effective registration statement before the securities are offered and sold to the public (or to have a valid exemption from registration).

The Commission has taken issue not just with sales for cash, but also “giveaways.” For example, in regard to an “emoji contest” in which participants could win a combined 31,000 of the coins at issue for sharing what the SEC calls “promotional artwork” and emojis on social media, the complaint says:

By entering the “emoji contest,” participants provided the defendants with valuable consideration—the online promotion of the their platform and ecosystem, promotional artwork to feature on the their website, and the Twitter and Facebook handles of entrants and their tagged friends—in exchange for an opportunity to receive their crypto assets.

Neither the defendant nor his entities took any steps to exclude U.S. persons from receiving coins in this offering, and at least one of the winners who received the crypto assets was a resident of this District.

Airdrops: also problematic, in the SEC’s view.

There’s a lot more to this complaint, which as I mentioned goes on for 50 pages. It’s just the latest in a string of SEC crypto-related enforcement actions and head-shakings, all of which build on a a 50% year-over-year increase in enforcement actions in 2022. Coinbase also furnished a Form 8-K this week to disclose its receipt of a Wells Notice which the company believes could relate to its spot market, staking service Coinbase Earn, Coinbase Prime and Coinbase Wallet.

Since John covered an NBA connection a few weeks ago and I don’t want to let anyone down who follows this blog for celebrity gossip, I’ll note that expectant mom Lindsay Lohan and several others were also caught up in this. They settled allegations that they illegally touted the crypto assets.

Liz Dunshee