Summary: SEC Comissioner Hester Peirce — nicknamed 'Crypto Mom' — has released a dissenting opinion following charges the regulatory body brought against crypto company Unikrn for an unregistered initial coin offering. Unikrn managed to successfully earn $31 million during the initial coin offering of UnikoinGold (UKG) in 2017, winning the attention of flashy investors including Mark Cuban. The company offers ...
SEC Comissioner Hester Peirce — nicknamed 'Crypto Mom' — has released a dissenting opinion following charges the regulatory body brought against crypto company Unikrn for an unregistered initial coin offering.
Unikrn managed to successfully earn $31 million during the initial coin offering of UnikoinGold (UKG) in 2017, winning the attention of flashy investors including Mark Cuban. The company offers an esports betting platform and planned to use the funds from the ICO to add new features and develop new applications for UKG tokens.
In a release on Tuesday, September 15 the SEC announced that Unikrn had agreed to pay out a $6.1 million dollar penalty to settle charges that the company had conducted an unregistered offering of digital asset securities. The millions of dollars makes up essentially all of the company's assets.
Without admitting or denying the SEC's findings, Unikrn will pay the penalty back to investors through a Fair Fund. The UKG tokens have also been disabled as a result of the order. The ruling highlighted the uncertainty surrounding regulation in the cryptocurrency space.
The SEC determined that the transaction between Unikrn and retail investors constituted investment contracts and are thus subject to securities registration requirements — a determination typically made using the Howey Test. The Howey Test states that a transaction is an investment contract if four conditions are met: an investment of money, a common enterprise, expectations of profit, and profits coming from the efforts of others. When applied to crypto assets, these rules have become far more convoluted and there is still great uncertainty regarding how to navigate SEC registration guidelines.
The SEC has frequently launched enforcement charges against crypto companies, but typically the charges include fraud allegations. In the case of Unikrn, the company was not accused of misappropriating funds or lying to investors. The charges brought against the company have raised concerns that regulatory grey areas in the cryptocurrency space will stifle innovation and kill startups before they have had the chance to take off.
Commissioner Peirce in her dissenting opinion amplified those voicing concerns, acknowledging that registration violations are serious and must be addressed, but adding that the actions against Unikrn could be doing more harm than good.
"We should strive to avoid enforcement actions and sanctions, however, that enervate innovation and stifle the economic growth that innovation brings," she wrote. "I believe that this action and its accompanying sanctions will have such consequences."
She criticized the SEC for effectively forcing Unikrn to cease operations because of an allegedly improper offering of what the commission determined to be securities. Peirce herself does not agree with the commission's determination that UKG tokens constitute securities and highlighted that the determination requires a subjective weighing of facts.
Peirce called on the commission to allow for a regulatory safe harbor, allowing companies like Unikrn to have a three-year window within which to refine their platforms. She warned that the commission's actions have the potential to deny people benefits crypto innovation may bring.
"Entrepreneurs may be forced to choose between unpalatable options: expending their limited capital on costly legal consultation and compliance or forgoing their pursuit of innovation due to fear of becoming subject to an enforcement action," she wrote.
Regardless of whether the commission decides to implement a safe harbor approach, regulatory certainty in the crypto space will likely prove essential to continue growth in the space.
By Emily Mason