The United States Securities and Exchange Commission (SEC) reached a settlement with crypto firm Quantstamp following charges of securities law violations. Quantstamp agreed to settle with the SEC without admitting or denying the charges.

Back in October-November 2017, Quantstamp conducted its Initial Coin Offering (ICO), raising over $28 million by selling its native token QSP to nearly 5,000 investors, including individuals residing in the United States. The SEC has alleged that these QSP tokens can be classified as securities according to the Howey test, and Quantstamp’s failure to register them violated federal securities laws.

During its ICO, Quantstamp actively promoted its automated smart contract security auditing platform, projecting significant potential for its platform. The SEC claims that Quantstamp’s marketing efforts led investors to believe their investment in QSP tokens could yield substantial profits. Under the Howey test, a transaction is considered a security if it involves an investment of money in a common enterprise, with investors expecting reasonable profits derived from the efforts of others.

Quantstamp attempted to argue for an exception from registering its offers and sales of QSP tokens on the basis that the sales to foreign investors were exempt from federal securities laws. However, by selling to non-accredited US investors, Quantstamp failed to qualify for this exception as per the SEC’s assessment.

Despite the success of its ICO, Quantstamp faced challenges upon launch. Investors criticized the project for accepting alternative payment methods for audits, undermining their promise to promote the use of the QSP token. Moreover, signs indicated that the project saw reduced activity and potential abandonment a few years after the ICO.

As part of the settlement, Quantstamp agreed to a cease-and-desist order and will pay disgorgement of $1,979,201, prejudgment interest of $494,314, and a civil penalty of $1 million.

Quantstamp’s QSP token has experienced a significant decline in value since its all-time high of $0.8664 in 2018. Currently trading at around $0.0108, the token has witnessed a decrease of over 98%.

This settlement between Quantstamp and the SEC highlights the importance of adhering to securities laws within the cryptocurrency industry. It serves as a reminder for future projects and investors to ensure compliance, ultimately fostering a more regulated and secure environment for participants.

Disclaimer: The information provided in this research report is for informational purposes only and should not be interpreted as financial or investment advice. The NFT and cryptocurrency market is highly volatile, and readers should conduct thorough research before making any investment decisions.