Blockchain Privacy Project Enigma Slapped with SEC Fine for 2017 ICO

The SEC has concluded that sale constituted an unregistered securities offering and has ordered the Enigma team to pay a $500,000 penalty
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The U.S. Securities and Exchange Commission (SEC) is still working its way through a backlog of enforcement actions related to the cryptoeconomy, at least if its latest settlement is any indication.

One February 19th, the SEC announced it had settled charges with Enigma MPC, a privacy-focused blockchain startup with offices in the U.S. and Israel that conducted a $45 million USD initial coin offering (ICO) for its ENG token in 2017.

Accordingly, the SEC has concluded that sale constituted an unregistered securities offering and has ordered the Enigma team to pay a $500,000 penalty and immediately cease any further violations of federal securities laws.

Likewise, the privacy project, which consented to the SEC’s enforcement “without admitting or denying [the] findings,” has similarly agreed to a claims process to refund affected ENG investors and to register and report on its operations to the SEC going forward.

John Dugan, who helps head up enforcement activities at the SEC’s Boston Regional Office, said the new order was about making things right for wronged investors:

“All investors are entitled to receive certain information from issuers in connection with a securities offering, whether it involves more traditional assets or novel ones. The remedies in today’s order provide ICO investors with an opportunity to obtain compensation and provide investors with the information to which they are entitled as they make investment decisions.”

Enigma Unveils Mainnet

In a separate blog post, the Enigma team took the rollout of the SEC news as opportunity to reveal that the project had launched its proof-of-stake, Cosmos-based mainnet on February 20th.

Notably, Ethereum was previously the Enigma network’s consensus layer, so the project’s new mainnet marks the completion of a transition from Ethereum to Cosmos infrastructure. The project’s new PoS consensus model also marks a shift to a more actively participatory system.

“The Enigma mainnet is now fully in the hands of the validators who operate it, and future protocol changes must be submitted as proposals (either by the Enigma core development team or other ecosystem participants) and voted on for inclusion by validators in the Enigma network,” the project’s builders noted.

However, the sour news from the SEC overpowered the mainnet news in the market, as the ENG token had acutely sunk some 25 percent to below $0.36 in the hours immediately after the Commission announced its latest settlement.

Somewhat relatedly, Enigma’s new mainnet has arrived with a new non-ERC20 coin, the SCRT token, for which the privacy startup is currently exploring avenues for a community SCRT-ENG token swap process.

“We are continuing discussions with our legal counsel and regulators to identify an effective means of facilitating a swap that complies with all relevant securities regulations,” the project’s builders have commented.

“Safe Harbor” Debate Continues in U.S.

Earlier this month, SEC Commissioner Hester Peirce put forth a “safe harbor” proposal that would give token projects aimed at building decentralized networks a three-year grace period during which they could conduct token sales without being subjected to traditional federal securities laws in the U.S.

Unsurprisingly, the proposal has led to an explosion of discussion in the cryptoeconomy — some stakeholders are enthralled with the thrust of Commissioner Peirce’s proposal, while others have argued it’s misguided and should be refashioned.

There’s no need for anyone to get too excited just yet, as the proposal still has a long ways to go before it could be formally enacted at the SEC. But Peirce’s early work in this area shows the regulatory environment in America toward cryptocurrencies could be set for considerable shake ups in the years ahead, which also means more attention is likely coming from mainstream circles in general.


William M. Peaster is a professional writer and editor who specializes in the Ethereum, Dai, and Bitcoin beats in the cryptoeconomy. He's appeared in Blockonomi, Binance Academy, Bitsonline, and more. He enjoys tracking smart contracts, DAOs, dApps, and the Lightning Network. He's learning Solidity, too! Contact him on Telegram at @wmpeaster

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