On September 30, 2019, the SEC issued an order instituting cease-and-desist proceedings pursuant to Section 8A of the Securities Act of 1933, making findings, and imposing a cease-and-desist order with respect to Block.one in connection with an ICO allegedly conducted in violation of Sections 5(a) and 5(c) of the Securities Act. The order was part of a settlement between Block.one and the SEC.
Block.one is a technology company that was founded in 2016 to develop the EOSIO software, which was designed to support public and private blockchains by increasing blockchain transaction speeds, reducing transaction costs, and improving blockchain scalability. From June 26, 2017, through June 1, 2018, Block.one conducted an ICO during which it sold 900 million ERC-20 tokens and raised proceeds worth approximately US $ 4 billion.
Applying the test set forth in SEC v. W.J. Howey Co., the SEC determined that the ERC-20 tokens were securities and that the sale of those tokens was an unregistered securities offering because a purchaser of the tokens would have a reasonable expectation of profit based on Block.one’s efforts in developing, promoting, and launching its software and blockchains. The SEC required Block.one to cease and desist from further violations and to pay a monetary penalty of US $24 million. Block.one did not admit or deny the SEC’s findings.