SEC Gives $4 Million in Fines to Coinme for ‘Misleading’ UpToken ICO
The US Securities and Exchange Commission has fined crypto exchange Coinme nearly $4 million for allegedly offering unregistered securities and making “misleading statements” on the UpToken (UP) crypto token.
On April 28, the Securities and Exchange Commission (SEC) said it settled charges against Coinme, its subsidiary Up Global SEZC and the CEO of both firms, Neil Bergquist.
Up Global agreed to pay a penalty of $3.52 million, for which Coinme was also responsible. Separate penalties against Coinme and Bergquist of $250,000 and $150,000, respectively, were also settled, which both have agreed to pay.
In its order, the SEC alleged that Coinme, Up Global and Bergquist’s Initial Coin Offering (ICO) of UP between October and December 2017 constituted an investment contract under the Howey test and were later unregistered securities offerings.
The ICO raised about $3.6 million to expand the amount of Bitcoin (BTC) ATMs in Coinme’s fleet, which it added to 30 ATMs with ICO funding. UP holders received benefits such as discounted fees and 1% cashback paid in UP when using ATMs.
In January 2019, Coinme changed its offering and partnered with Coinstar to use its cash counter kiosks to facilitate cash-to-crypto transactions instead of its own ATMs. By July 2019, Coinme closed all of its own ATMs.
“There is currently no use for UpToken and UpToken holders can no longer use UpToken to obtain the benefits that were described in the UpToken offering materials.”
The price of UP has seen a significant decline since then, with its market cap also falling to around $50,000 and 24-hour trading volume peaking just above $180.
Bergquist and Up Global also made “false and misleading statements” about the demand for UpToken and the amount raised in the offering, according to the SEC.
Up Global said Coinme’s purchase of UP to fund its ATM rewards program would create constant demand for the token, but the SEC said:
“Bergquist and Up Global took steps before and throughout the ICO to obtain an UpToken supply that would significantly reduce Coinme’s need to purchase UpToken post-ICO for the ATM rewards program.”
The SEC claimed that Coinme sent 160 BTC worth over $1 million at the time to an Up Global wallet that was used to receive investor funds in the ICO. Up Global sent back around 14.5 million UP at a discount to Coinme, and the transaction “deliberately or recklessly” created the impression that a third party was making a large purchase.
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In another example, it was claimed that Bergquist negotiated a 500 Bitcoin round-trip transaction of UP tokens with an unnamed Hong Kong company, with Coinme borrowing the funds to buy additional UP at a discount. The transaction was also used to create an impression of demand for tokens.
The SEC said Bergquist neither admitted nor denied the regulator’s findings, agreed to settle the charges and was barred from acting as a director of a public company for three years.
Cointelegraph contacted Coinme for comment, but did not immediately receive a response.
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