T Skevington and M Bacina
Misleading statements at forefront of SEC action against Boon.Tech ICO
The U.S. Securities and Exchange Commission (SEC) has come down hard on another ICO, announcing charges against Virginia-based Boon.Tech and its chief executive officer Rajesh Pavithran in connection with an ICO from November 2017.
The charges relate to an ICO conducted between November 2017 and January 2018, during which Boon.Tech and Pavithran raised approximately USD$5 million by selling "Boon Coins" to more than 1,500 investors worldwide. The ICO was notionally to raise funds for the development and marketing of a (novel and very original) platform to connect employers posting jobs with freelancers seeking work.
Naturally, the SEC found that the Boon Coins were offered and sold as investment contracts and were therefore securities. The SEC also found that Boon.Tech and Pavithran made multiple false and misleading representations, including claims that Boon Coins were "stable and secure" because Boon.Tech’s platform eliminated volatility inherent in the digital asset markets by using patent-pending technology to hedge Boon Coins against the U.S. dollar, when in fact Boon.Tech had no such patent-pending technology
Speaking to the extent of Boon.Tech and Pavithran's alleged conduct, Kristina Littman, Chief of the SEC Enforcement Division’s Cyber Unit said:
Investors are entitled to truthful disclosures from issuers of securities, whether digital or otherwise... Pavithran and Boon.Tech defrauded investors by convincing them to fund this endeavor based on the allure of innovation that simply did not exist.
While the matter did not go to court, the parties agreed to settle the charges by consenting to the issuance of the SEC's order, which requires Boon.Tech to disgorge the USD$5 million raised in the ICO plus prejudgment interest of USD$600,334. The order also requires Boon.Tech and Pavithran to:
destroy all Boon Coins in their possession;
issue requests to remove Boon Coins from any further trading on all third-party digital asset trading platforms;
refrain from participating in any future offerings of digital asset securities; and
separately requires Pavithran to pay a penalty of USD$150,000
Pavithran has also been barred from serving as an officer or director of a public company.
This ought to serve as a fresh reminder for those who have issues tokens in the past, or who plan to issue tokens in the future, that over-hyping your project can expose you to significant liability for misleading and deceptive conduct - a concept which transcends any one jurisdiction or licenced activity. Also, just because a regulator doesn't come after you at the time of the token issuance, you are at risk of enforcement action for a long time after the fact.