The US Securities and Exchange Commission fined crypto exchange Coinme approximately $4 million for allegedly marketing unregistered securities and making “misleading statements” about the UpToken (UP) crypto token.
The Securities and Exchange Commission (SEC) announced on April 28 that it has settled lawsuits against Coinme, its subsidiary, Up Global SEZC, and the CEO of the two companies, Neil Bergquist.
Up Global agreed to pay a fine of $3.52 million, which Coinme was also responsible for. Separate fines of $250,000 and $150,000 were also imposed on Coinme and Bergquist, which both agreed to pay.
The SEC claimed in its ruling that Coinme, Up Global, and UP’s Bergquist Initial Coin Offering (ICO) from October to December 2017 were investment contracts under the Howey test and offerings of unregistered securities.
The ICO raised approximately $3.6 million to increase the $28,642 number of Bitcoin ATMs in Coinme’s fleet, which added 30 ATMs using ICO funds. When using an ATM, UP holders get benefits such as reduced fees and 1% cashback paid at UP.
Coinme modified its product in January 2019, partnering with Coinstar to use its cash counter kiosks instead of its own ATMs to handle cash-to-crypto conversions. Coinme has closed all of its ATMs in July 2019.
“UpToken is currently unused, and UpToken holders can no longer use UpToken to obtain the benefits described in the UpToken offer materials.” Since then, the UP’s price has dropped significantly, with its market value dropping to around $50,000 and 24-hour trading volume reaching $180.
According to the SEC, Bergquist and Up Global allegedly made “false and misleading statements” regarding the UpToken request and the amount raised in the offer.
The SEC stated that “Bergquist and Up Global took steps before and during the ICO to acquire a supply of UpToken which will substantially reduce Coinme’s need to purchase UpToken after the ICO for the ATM rewards program.”
According to the SEC, Coinme sent 160 BTC worth over $1 million at the time to the Up Global wallet used to handle ICO investor payments. Up Global returned about 14.5 million UP to Coinme at a discount, and the transaction “knowingly or recklessly” suggests that the third party made a large purchase.
In another case, Bergquist allegedly arranged to trade UP 500 Bitcoin tokens back and forth with an undisclosed Hong Kong company, with Coinme borrowing the cash to acquire further UP at a discount. The transaction is also used to give the impression that the token is in high demand.
Bergquist, who neither confirmed nor denied the SEC’s findings, agreed to settle the allegations and was barred from operating as a public business officer for three years, according to the SEC.