The United States Securities and Exchange Commission (SEC) has fined Coinme, a crypto exchange, almost $4 million for allegedly issuing unregistered securities and making “misleading statements” about its UpToken (UP) cryptocurrency token. The SEC reached a settlement on April 28th with Coinme, its subsidiary Up Global SEZC, and their CEO, Neil Bergquist.The SEC alleged that the ICO of UP conducted between October and December 2017 was an investment contract under the Howey test and was an unregistered securities offering. The ICO raised around $3.6 million, which Coinme planned to use to expand its fleet of Bitcoin ATMs. UP holders were offered benefits such as discounted fees and a 1% cashback paid in UP when using the ATMs.Coinme partnered with Coinstar in January 2019 to use its cash-counting kiosks to facilitate cash-to-crypto transactions, effectively shutting down all of its own ATMs by July 2019. The SEC noted that there is no longer any use for UpToken, and its holders cannot use it to obtain the benefits that were described in the offering materials.The price of UP has dropped significantly since then, with its market cap also falling to around $50,000 and 24-hour trading volumes topping just over $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.The SEC claimed that Coinme sent 160 BTC, worth over $1 million at the time, to an Up Global wallet 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 “knowingly or recklessly” created the impression that a third party made a large purchase.The SEC also 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 purchase further UP at a discount. The transaction was used to create an impression of demand for the tokens.Up Global said Coinme’s purchasing of UP to fund its ATM rewards program would create constant demand for the token, but the SEC claimed that Bergquist and Up Global took steps before and throughout the ICO to obtain an UpToken supply that would substantially reduce Coinme’s need to purchase UpToken after the ICO for the ATM rewards program.The SEC imposed a $3.52 million penalty on Up Global, for which Coinme was also liable. The regulator also imposed separate penalties of $250,000 and $150,000 on Coinme and Bergquist, respectively, both of whom agreed to pay the penalties.In settling the charges, Bergquist did not admit or deny the regulator’s findings but was barred from acting as an executive of a public company for three years. Cointelegraph contacted Coinme for comment but did not receive an immediate response.The SEC has continued its crackdown on ICOs and cryptocurrencies over the past few years, with several high-profile cases resulting in significant fines and penalties. The SEC has emphasized that ICOs and other token offerings must comply with federal securities laws, including registering with the SEC or qualifying for an exemption.
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