Coinme Slapped With $4M Fine by SEC Over ‘Deceptive’ Uptoken ICO

SNEAK PEEK

• Coinme fined $4M by SEC for violating securities laws.
• Coinme raised $3.6M through unregistered ICO for Bitcoin ATMs.
• Coinme partnered with Coinstar and shut down all ATMs in 2019.

Coinme, a Seattle-based cryptocurrency exchange, has been hit with a $4 million fine by the U.S. Securities and Exchange Commission (SEC) for allegedly violating securities laws. The SEC accused Coinme of offering unregistered securities and providing false and misleading information about its digital asset, UpToken (UP)

However, on April 28, the SEC announced that it settled with Coinme, its subsidiary Up Global SEZC, and their CEO, Neil Bergquist, over the allegations of violating securities laws. As part of the settlement, Coinme and Up Global SEZC agreed to collectively pay $3.5 million in penalties, while Bergquist will pay a personal penalty of $150,000

According to the SEC order, the agency alleged that the Initial Coin Offering (ICO) conducted by Coinme, Up Global, and Bergquist between October and December 2017 was an unregistered securities offering. Based on the SEC argument, the ICO met the criteria of an investment contract under the Howey test. The test defines security as an investment of money in a common enterprise with the expectation of profits to be derived solely from the efforts of others.                                                                                                 

On the other hand, reports indicate that Coinme successfully raised $3.6 million through the ICO to expand its fleet of Bitcoin ATMs. With the funds raised, Coinme added 30 new ATMs to its existing fleet, bringing the total number of ATMs to over 300 across the United States. Further, those who participated in the ICO were rewarded with benefits such as discounted fees and a 1% cashback paid in UP, Coinme’s native cryptocurrency, when using the ATMs. 

Nonetheless, in January 2019, Coinme modified its services by teaming up with Coinstar to utilize its cash-counting kiosks for enabling conversions from cash to cryptocurrency, instead of using its ATMs. Later, in July 2019, Coinme ceased the operations of all its ATMs.