The Securities and Exchange Commission (SEC) today issued a press release announcing it has instituted cease-and-desist proceedings against Gladius Network LLC, basically thwarting the unregistered initial coin offering (ICO) that the startup launched in 2017. The big deal is that Gladius got off without having to pay a penalty. So, it's a truce, of sorts.
Since the time Gladius rolled out its growth plan, the blockchain-enabled cybersecurity services company generated nearly $13 million. The goal was to build a network for renting spare computer bandwidth. The firm also intended to incorporate transaction processing that is comparatively fast and affordable.
Gladius had agreed in advance of today's SEC announcement that it would submit a settlement offer – it had turned itself in to the SEC in mid-2018. Surely, the growing sound of alarms over ICO fraud, theft, and (occasionally) ineptitude served as a motivating backdrop.
Gladius got out of the SEC doghouse penalty-free because it "self-reported" and agreed to give investors their money back. Gladius also agreed to register with the SEC as well as register the digital tokens it had created for sale, now officially deemed "securities" as defined by the SEC. These SEC actions are relatively new, and we can bet they won't be the last.
It was only last November that the SEC issued a press release and explained its dealings in two recent ICO registration cases, in which Airfox and Paragon Coin agreed to pay penalties for similar registration violations, refund investors, and make other amends.
In the November press release, Stephanie Avakian, co-director of the SEC's Enforcement Division, stated:"We have made it clear that companies that issue securities through ICOs are required to comply with existing statutes and rules governing the registration of securities. These cases tell those who are considering taking similar actions that we continue to be on the lookout for violations of the federal securities laws with respect to digital assets."
The takeaway for ICOs: It might be better to get on the right side of the SEC instead of taking a wait-and-see approach.