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<p>SEC bugles sounded retreat as Enforcement Division troops let Block.one escape an ICO fate that felled lesser transgressors like <a href="https://www.thecrowdfundinglawyers.com/sec-ices-icobox/">ICOBox</a> and <a href="https://www.thecrowdfundinglawyers.com/from-meh-to-dont-tase-me-bro-ico-legal-advice/">Munchee</a>. Perhaps it was gearing for heavyweight battles against <a href="https://www.thecrowdfundinglawyers.com/kik-lawsuit-must-decide-decentralization-question/">Kik</a> and <a href="https://www.thecrowdfundinglawyers.com/telegram-sec-fight-could-signal-turning-point-for-crypto-law/">Telegram</a>, perhaps Block.one’s lawyers had nude selfies of Chairman <a href="https://www.thecrowdfundinglawyers.com/shallow-end-jay-treads-water-while-reg-cf-sinks-but-is-help-on-the-way/">‘Shallow-End Jay’ Clayton</a>. </p>
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<p>Whatever the reason, Block.one walked away from a $4 billion
unregistered securities offer with a “<a href="https://www.coindesk.com/the-silver-lining-in-block-ones-sec-slap-on-the-wrist">stunning
and historically significant</a>” $24 million wrist slap. No disgorgement, no rescission,
<a href="https://www.theblockcrypto.com/post/41632/what-the-block-one-sec-settlement-in-the-eos-ico-sale-means-and-doesnt">no
nothing</a>. It can even keep selling securities (they promise to <a href="https://www.sec.gov/divisions/corpfin/cf-noaction/2019/block.one-093019-506.pdf">follow
the rules</a> next time). Block.one and their China-heavy EOS blockchain, the <a href="https://www.coindesk.com/everyones-worst-fears-about-eos-are-proving-true">seventh
largest</a> by market cap, celebrated. Others scratched their head. &nbsp;Whether justified or not the SEC’s sudden soft
touch raises questions about favoritism as yet another indecisive year for the <a href="https://www.thecrowdfundinglawyers.com/how-token-rewards-will-kill-social-media/">token
revolution</a> starts to close. </p>
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<h2 style="text-align: center;"><strong>Block.one’s settlement is either prudent or corrupt</strong></h2>
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<p>We can view Block.one’s settlement two ways. The charitable
view is the SEC kept its powder, fining an amount <a href="https://www.coindesk.com/the-silver-lining-in-block-ones-sec-slap-on-the-wrist">roughly
equal</a> to US investment in its raise. Block.one claims it tried to stymie US
investors with IP blocking software and contractual disclaimers. Importantly
though, Block.one marketed the raise here and more importantly the tokens
became instantly tradeable in the U.S. in <a href="https://www.sec.gov/litigation/admin/2019/33-10714.pdf">July 2017</a>.</p>
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<p><a href="https://www.coindesk.com/the-silver-lining-in-block-ones-sec-slap-on-the-wrist">CoinDesk’s
Michael J Casey</a> sums the less charitable view: </p>
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<blockquote class="wp-block-quote"><p>One cynical conclusion to draw, then, is that the crypto startup community is now following the same norms as the Wall Street banks it seeks to dislodge. Here too, it seems, money buys protection, if not from the law per se but from the impediments to business that adverse rulings have on those of lesser means. It’s a melancholy thought for those who want this technology to lower barriers to entry and give scrappy garage-based startups a chance to change the world.</p></blockquote>
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<p>By this view the SEC’s dreaded storm troopers trade in swords
for plowshares depending on the size of lawyer billables and zeros in the raise.
(Think the crypto version of the government ignoring a presidential candidate’s
official communications placed on a bathroom-based server). </p>
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<p>At the least the SEC makes no secret it expects you to dance
to its tune. As <a href="https://www.thecrowdfundinglawyers.com/shallow-end-jay-treads-water-while-reg-cf-sinks-but-is-help-on-the-way/">Shallow-End
Jay</a> stated in recent <a href="https://www.thecrowdfundinglawyers.com/sec-commissioners-talk-crowdfunding-crypto-before-congress/">Congressional
testimony</a>: “Our doors are open to talk about these things and if somebody’s
going to launch something without coming to see us first, I think that’s a bad
idea.”</p>
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<p>Flatter the bureaucrats and the ‘facts and circumstances’
fall your way. Fight it and plowshares sharpen and cannonades besiege your
company. Unfortunately, without bright line rules the SEC leaves for its discretion
who gets artillery and who gets paroled. &nbsp;</p>
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<h2 style="text-align: center;"><strong>The SEC treated other ICO raises much harsher than Block.one</strong></h2>
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<p>Questions arise because of seemingly disparate treatment with <a href="https://www.thecrowdfundinglawyers.com/kik-lawsuit-must-decide-decentralization-question/">Kik</a>, <a href="https://www.thecrowdfundinglawyers.com/from-meh-to-dont-tase-me-bro-ico-legal-advice/">Munchee</a>, <a href="https://www.thecrowdfundinglawyers.com/sec-ices-icobox/">ICOBox</a>, and the <a href="https://www.thecrowdfundinglawyers.com/telegram-sec-fight-could-signal-turning-point-for-crypto-law/">looming Telegram</a>. The <a href="https://www.thecrowdfundinglawyers.com/kik-lawsuit-must-decide-decentralization-question/">Kik-SEC battle</a> is the marquee showdown. Commentators describe <a href="https://www.thecrowdfundinglawyers.com/kik-lawsuit-must-decide-decentralization-question/">Kik</a> as belligerent and “<a href="https://www.coindesk.com/the-silver-lining-in-block-ones-sec-slap-on-the-wrist">angry</a>,” whilst Block.one was helpful and accommodating. But that confrontational stance may provide clarity on issues like <a href="https://www.thecrowdfundinglawyers.com/kik-lawsuit-must-decide-decentralization-question/">decentralization</a> that demurred cases like Block.one will never solve. As the <a href="https://www.thecrowdfundinglawyers.com/amy-winehouse-to-valerie-szczepanik-come-on-over/">SEC’s infamous token guidance</a> indicates, clarity is not a commission priority.   </p>
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<p>Unlike Block.one, <a href="https://www.thecrowdfundinglawyers.com/kik-lawsuit-must-decide-decentralization-question/">Kik</a>
raised a comparatively paltry $100 million, half of which was an ostensibly
legal <a href="https://www.thecrowdfundinglawyers.com/reg-d/">Reg D</a> and by
its count only <a href="https://cdn.crowdfundinsider.com/wp-content/uploads/2019/08/SEC-v-Kik-Interactive-Anser-to-Complaint-8.6.19-Case-119-cv-05244-AKH.pdf">$16
million</a> from its allegedly illegal token sale. Yet <a href="https://www.thecrowdfundinglawyers.com/kik-lawsuit-must-decide-decentralization-question/">Kik</a>
hasn’t danced the SEC’s tune and is <a href="https://www.coindesk.com/kik-messaging-app-to-shut-down-following-sec-lawsuit-against-ico">besieged</a>.
The stakes are high. An appellate court could weaken the SEC’s hand and force
them into clearer rules. </p>
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<p>The SEC also iced <a href="https://www.thecrowdfundinglawyers.com/sec-ices-icobox/">ICOBox</a>. And it
stopped <a href="https://www.thecrowdfundinglawyers.com/from-meh-to-dont-tase-me-bro-ico-legal-advice/">Munchee</a>
on Day Two of its raise. Just last week it filed an emergency injunction to <a href="https://www.coindesk.com/telegram-could-postpone-crypto-issuance-after-us-halts-token-sale">stop
Telegram</a> from flooding the U.S. market with what it deems unregistered
securities. Block.one got none of this despite selling 900 million ERC-20
Tokens the commission deemed unregistered securities. These <a href="https://www.sec.gov/litigation/admin/2019/33-10714.pdf">tokens were</a>
“traded and widely available for purchase on numerous online trading platforms
open to U.S.-based purchasers throughout the duration of the ICO.”&nbsp; </p>
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<h2 style="text-align: center;"><strong>Ask LeBron James and Steve Kerr about kowtowing to China</strong></h2>
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<p>Whatever underlies the settlement, the commission could have
picked a more sympathetic startup. Block.one’s EOS blockchain is weighted with
Chinese whales and <a href="https://www.coindesk.com/everyones-worst-fears-about-eos-are-proving-true">fears
of state intervention abound</a>. The biggest EOS feature is delegated Proof of
Stake allowing China-based nodes to control governance. There is also
wide-spread vote buying. </p>
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<p>Given ongoing controversies with Huawei, the NBA, and Hong
Kong, killing <a href="https://www.thecrowdfundinglawyers.com/kik-lawsuit-must-decide-decentralization-question/">Canadian-based
Kik</a> whilst nerfing Chinese-heavy Block.one was not politic. Russian-created
Telegram will now amass even more scrutiny.&nbsp;
</p>
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<p>By <a href="https://twitter.com/thecrowdfundlaw">Jossey PLLC</a>
via <a href="http://www.thecrowdfundinglawyers.com">www.thecrowdfundinglawyers.com</a>
</p>
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