An organizer of ICO has been charged by the Massachusetts Securities Division for the violation of securities law of the state by selling securities to residents.
Krills Bensonoff launched an ICO with his company, Caviar, with the intention of excluding Americans but according to the charge, enough measures were not put in place to prevent Americans from signing up thereby leading to the sale of what the Division called unregistered securities to at least, two residents of the state of Massachusetts.
Even though the company’s ICO website stated that the token was not meant to be sold to Americans, it is unclear how those subscribers were able to get around the restrictions. The suit read that at least a couple of residents purchased the tokens, which the company with interests in cryptocurrencies and properties sold.
The charge said that there was no basis for the firm to claim the token was not securities as they met all the attributes and features of securities that needed registration or exemption from the Massachusetts Securities Division, none of which was obtained by Caviar.
The Caviar ICO had already raised $3 million out of a target of $24 million when the Massachusetts Securities Division stepped in with the charge. The Cayman registered company is in a quagmire as regulators are alleging that Mr. Bensonoff has never been to Caymans and wondered why he should head a company in from a country he has never been to.
The Division said that the company had claimed Caymans registration, stating that Caviar did so because they were aware that it is a jurisdiction the Division is comfortable with.
Mr. Bensonoff said that he doesn’t think that the company breached Massachusetts securities law. Speaking to Bizjournal, he said that the company is still open to dialogues with the Division to reconsider and have them come to terms on how to settle the issue of the Massachusetts residents that subscribed for the ICO.
The Secretary of the Commonwealth Mr. Galvin said that the charge was necessary to warn other companies that would want to sell securities through ICOs.
It is interesting to note that the Caviar ICO which had promoted its token by promising investors a share in the company’s profits was referred to by the filing as a cryptocurrency scheme. A visit to the website caviar.io shows that US IP addresses are barred, though the Massachusetts regulators insist that the company blocked US residents after regulators had contacted the company early in January.
The charge seeks to stop the sale of the Caviar token, compel them to return all tokens sold and have them fined to cover administrative fees. Mr. Galvin had earlier warned that his office would take serious steps to stem the tendency for companies to sell securities in the state. His office later confided that at least a resident was able to circumvent the Caviar exclusion of Americans by using a passport they got from the google search.
Caviar Capital is the sister company run by Mr. Bensonoff which was the property arm of the ICO meant to be used as a hedge for the token. A business model which Bensonoff said that they had carefully studied to ensure that it never breached Massachusetts securities law. The Caviar token was launched last December amid pressure on ICOs from regulators who want to ensure that ICO tokens have utility before giving them approval.