The US SEC Fines Shipchain $2 Million for Conducting an Unregistered Token Offering: Company Agrees to Cease Operations

The US Securities and Exchange Commission (SEC) has issued a cease and desist order against Shipchain and ordered it to pay a penalty of $2.05 million. Additionally, the regulator has directed Shipchain, a shipping and logistics company, to transfer Ship tokens in the possession or control of the company’s directors to a “fund administrator.”

Unregistered Token Sale

In a statement announcing the cease and desist order, the SEC alleges that Shipchain, which “promoted its company and the ICO through various media,” raised $27.6 million from a pre-sale held towards the end of 2017 and early 2018. The regulator explains:

In total, Shipchain sold approximately 145 million Ship tokens to over 200 people or groups of people, including U.S. persons, for approximately $27.6 million (comprised of fiat currency and digital assets, such as Bitcoin or Ether, valued at the time of receipt).

The SEC insists that “token purchasers had a reasonable expectation of profits based on the efforts of Shipchain.” This expectation, as well as Shipchain’s many promises to buyers, means the Ship token sale met the threshold of a security offering. Yet according to the SEC:

Shipchain’s offer and sale of Ship tokens was not registered with the Commission, nor did Shipchain’s offer and sale of Ship tokens satisfy any valid exemption from registration.

Accordingly, the regulator says the Ship token pre-sale violated Section 5(a) and 5(c) of the Securities Act which forbids the soliciting for funding without registration and approval by the SEC.

Shipchain Ceasing All Operations

In the meantime, Shipchain has agreed to cooperate with the SEC by undertaking to assist in the process of permanently disabling the Ships tokens. The company has also agreed to publicize the cease and desist order on its website and via the company’s social media channels “within 10 days of the date of this Order.”

In the meantime, the SEC statement states the Shipchain’s executives have “decided to cease all operations” due to the fact that “the penalty represents substantially all of Shipchain’s net assets.”