• J McGlynn and M Bacina

SEC slaps SALT with penalty and refund order


The Securities and Exchange Commission (SEC) recently hit Salt Lending with an order to offer refunds to participants in its 2017, $47 million initial coin offering (ICO), as well as a penalty of $250,000 civil penalty.


On 30 September, the SEC released details of a court order which ruled the lending platform had violated Sections 5(a) and 5(c) of the Securities Act when it offered and sold SALT tokens without having a registration statement filed or in effect with the SEC.


According to the SEC ruling, when Salt's ICO began in June of 2017, it raised $47 million in funds by the end of the year. Salt then raised an extra $1.2 million from post-ICO sale of its SALT tokens. The SEC's finding that the SALT Token was a security hinged on the finding that SALT token purchasers has a reasonable expectation of obtaining a future profit out of Salt's endeavours. In particular, the SEC found that Salt made it clear to investors that:

Salt would take various steps to increase the price of Salt Tokens, including limiting the number of Salt Tokens created and sold, managing the price at which Salt continued to sell the Salt Token, and managing the value at which Salt allowed the Salt Token to be redeemed for various benefits

Of course, these were not uncommon features among ICO's at the time. In Australia, ASIC would likely consider statements suggesting value would be created in a token to be indicative of a token constituting a financial product.


As a result of the SEC's determination that Salt had issued SALT Tokens without registering the token as a security, and no doubt during correspondence with Salt, Salt made an offer to settle the proceedings, which the SEC has accepted. As a result, the SEC has Commission ordered Salt to commit to a funds return process for its ICO investors, as well as register its tokens as a security. In addition to the refund order, Salt has been ordered to pay the SEC a civil penalty in the amount of $250,000 within 10 days of 30 September 2020.


Salt was also given 14 days to issue a press release on its website. Although to date this has not yet occurred, the next day Salt tweeted:

Anyone who bought SALT from us directly before and including 12/31/2019 will have an opportunity to submit a written claim at a later date to recover the consideration paid plus interest.

In a statement released by Salt last Wednesday, CEO Justin English described working towards the settlement as a “humbling experience” explaining:

While it has forced us to hit pause on a number of initiatives and product releases, it has also given us time to think about how we want to evolve the business. I’m excited about Salt’s future and grateful for the opportunity to pursue our vision of building products and services that will help our customers build and preserve their wealth.

The SEC's order highlighted that the settlement does not mean Salt admits or denies the findings. This marks the latest in a string of claims and settlements by the SEC in relation to token offerings, with the strongest precedent to date being in the Kin v SEC decision.


© Michael Bacina. All rights reserved

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