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Initial Coin Offerings (ICOs) on SEC’s Radar

This month, the Securities and Exchange Commission (SEC) announced that it has entered into a settlement with SimplyVital Health, Inc., a blockchain company that offered and sold approximately $6.3 million worth of securities to the public. The SEC alleged that the plan to conduct an initial coin offering (ICO) to raise money to develop a “healthcare-related blockchain ecosystem” was done without proper registration with the SEC.

According to the SEC’s Order, SimplyVital Health, Inc. publicly announced its plan for the token sale and offered a new token called Health Cash or HLTH, to be used as currency in its Health Nexus. “SimplyVital concurrently announced that it would conduct a ‘re-sale’ of its HLTH tokens, in which it offered investors Simple Agreements for Future Tokens, or SAFTs, under which it sold HLTH tokens that would not be delivered to investors unless and until created by SimplyVital. The order finds that SimplyVital did not file a registration statement with the Commission or qualify for an exemption from registration before offering and selling HLTH to the public through the SAFTS.” The failure to register violated the registration provisions of Section 5(a) and (c) of the Securities Act of 1933.

SimplyVital agreed to a cease-and-desist order and to voluntarily return substantially all of the funds raised during the pre-sale back to investors.

There is a lot of chatter about blockchain technology and ICOs. People and entrepreneurs want to get in on the action. The SEC is following ICOs closely and its settlements, like other regulatory agencies, offer guidance as to its interpretation of governing laws that may have been enacted long before new technology. Following the guidance and being aware of legal requirements with new technology is key to compliance as regulatory agencies adapt to new technology.

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About this Author

Linn F. Freedman, Robinson Cole Law Firm, Cybersecurity and Litigation Law Attorney, Providence
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Linn Freedman practices in data privacy and security law, cybersecurity, and complex litigation. She provides guidance on data privacy and cybersecurity compliance to a full range of public and private clients across all industries, such as construction, education, health care, insurance, manufacturing, real estate, utilities and critical infrastructure, marine, and charitable organizations. Linn is a member of the firm's Business Litigation Group and chairs its Data Privacy + Cybersecurity Team. She is also a member of the Financial Services Cyber-Compliance Team (CyFi ...

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