TransUnion blockchain partner Bloom settles with SEC over crypto token considered a security – Ledger Insights
Yesterday, the US Securities and Exchange Commission (SEC) announced that it reached a settlement with the Bloom Protocol. Bloom conducted a token ICO that ended in January 2018, raising $31 million, and the SEC considers this ICO an unregistered securities offering.
Bloom started out focusing on credit scoring and currently offers self-sovereign identity solutions. Since its founding in 2017, it has had relationships with Transunion, BMW, Amex Middle East and crypto lender BlockFi.
According to the settlement, Bloom must pay the SEC $300,000, register its tokens as a security, and offer those who bought tokens in the ICO a refund. If it does not comply, the $31 million raised will be a fine.
What is unclear is how Bloom can afford to comply with the order without a major round of financing. The market value of the BLT token is currently around $500,000, so one can guess that quite a few people will be asking for their money back.
Outside of Bitcoin and Ethereum, the SEC considers many tokens to be securities and is currently in litigation with Ripple, claiming that XRP is a security. Additionally, as part of an insider trading lawsuit filed last month against a former Coinbase employee, the SEC claims nine tokens are securities. It is also investigating Coinbase for listing these securities.
Why Bloom was a soft target
The Howey test is typically applied to digital assets to determine whether they are securities. This classifies a token as a security where it is an investment of money in a common enterprise with a reasonable expectation of profit.
Today, many blockchain protocols do not bother with an ICO. They give away the tokens in the unknown expectation that they will accumulate value, bypassing the legal risks of ICOs. However, Bloom Protocol conducted an ICO with both a pre-sale and a public sale without preventing US buyers from participating. During the presale, both Bloom and investors referred to the tokens as an investment and the sale as a financing.
The SEC said there were several indicators to meet the “expectation of profit” hurdle. This included meeting with venture capital firms for the pre-sale. The proceeds will be used for platform development and business expenses. The average investment in the presale was $340,000 and $2,000 in the public sale, “both of which are inconsistent with
consumer use” as a utility symbol, the SEC said. The company also failed to say how many tokens would be required for utility purposes.
Another reason why Bloom was an easy target is that a US registered company issued tokens and did not create decentralized governance. In other words, the company is still in the driver’s seat. In contrast, other protocols like to claim that the company only does the software development, but the token holders make the decisions.
On top of this evidence, Bloom doesn’t have the deep pockets to fight.
