Claire Hunte(Dow Jones) - The US Securities and Exchange Commission on Monday announced its first-ever enforcement action against an initial coin offering, saying a Canadian company violated US securities laws in raising $15m through this new, red-hot area of finance.
Charges against the company, described by the agency as a "scam" run by a "recidivist Canadian securities law violator," were brought by the SEC's new cyber unit as it looks to crack down on potential abuse in the cryptocurrency arena.
The SEC alleged that PlexCorps violated securities laws by marketing and selling up to $15m worth of cryptocurrencies, also called PlexCoins, to investors in the US and elsewhere. The commission also charged Dominic Lacroix and Sabrina Paradis-Royer, the company's founders, in connection with the sale.
"Full-fledged cyber scam"
The SEC said it had obtained an emergency court order to freeze the assets of PlexCorps and the two individuals.
In July, the Financial Markets Administrative Tribunal of Quebec banned PlexCorps and Lacroix from all investment-related activities targeted at Quebec residents. In October, Quebec's Superior Court declared the company and Lacroix in contempt of court, finding the defendants continued to market and solicit investments in PlexCorps.
The company, Lacroix and Paradis-Royer couldn't immediately be reached for comment. "This first Cyber Unit case hits all of the characteristics of a full-fledged cyber scam and is exactly the kind of misconduct the unit will be pursuing," said Robert Cohen, chief of the SEC's cyber unit.
Coin offerings are securities - on individual basis
The unit is a task force formed in September to combat fraud in the mushrooming area of offering digital coins. Private firms have raised more than $3bn this year alone by offering newly created cryptocurrencies, according to research firm CoinDesk.
Initial coin offering don't typically offer equity in a company issuing them. Rather, the offerings as more akin to crowdfunding and usually offer buyers of digital tokens the right to use them at some future date to buy a product or service the company plans to develop.
The SEC has previously said it would determine on an individual company basis whether coin offerings are securities and so should comply with disclosure and other offering rules.