US securities regulators have fined cryptocurrency exchange Coinme nearly $4 million for allegedly offering unregistered securities and making "misleading statements" about its crypto token, UpToken (UP).
On April 28, the US Securities and Exchange Commission (SEC) said it had settled charges against Coinme, its subsidiary Up Global SEZC, and both companies' CEO Neil Bergquist.
Up Global agreed to pay a $3.52 million fine, and Coinme should also be held liable. Coinme and Bergquist were fined $250,000 and $150,000, respectively, which both parties have agreed to pay.
In the order, the SEC said that Coinme, Up Global and Bergquist's initial coin offering (ICO) for UP between October and December 2017 was an investment contract under the Howey test, followed by an unregistered offering of securities. ICO Raises About $3. 6M to Expand Bitcoin Volume. ATMs in the fleet of Coinme, which has added 30 ATMs using ICO funds. UP holders receive benefits such as discounted fees and 1% UP cashback when using ATMs.
In January 2019, Coinme changed its product and partnered with Coinstar to facilitate cash-to-cryptocurrency transactions using its cash counting kiosks instead of its own ATMs. By July 2019, Coinme closed all of its own ATMs. “Currently UpT okens are useless and UpToken Holders can no longer use UpTokens to obtain the benefits described in the UpToken offering materials.”
Since then, the price of UP has dropped significantly, and its market cap has dropped to around $50,000, with a 24-hour trading volume of just over $180. Bergquist and Up Global also made “false and misleading statements” about the demand for Up Token and the amount raised in the offering, according to the SEC.
Up Global stated that Coinme's purchase of UP to fund its ATM rewards program will create continued demand for the token, but the SEC stated: “Bergquist and Up Global taking steps to secure UpToken supply prior to and throughout the ICO will significantly reduce the need for Coinme to purchase UpToken for the ATM rewards program after the ICO.” The SEC allegations that Coinme sent 160 BTC, worth more than $1 million at the time, to the Up Global wallet, which was used to receive investor funds in the ICO. Up Global returned about 14.5 million UP to Coinme at a discount, in a transaction "intentional or not" that gave the impression of a large third-party purchase.
In another example, Bergquist allegedly negotiated a 500 bitcoin round-trip deal in UP tokens with an unnamed Hong Kong-based company, with Coinme borrowing the funds to purchase further UP at a discount. The transaction is also used to create an impression of demand for the token. Bergquist neither admitted nor denied the regulator's findings, agreed to settle the charges and was banned from serving as a public company executive for three years, the SEC said.
