Startup behind EOS, Block.One, in Legal Trouble

The FTC Fines EOS Creator Block.One for Illegal ICO

If altcoins are securities, most ICOs were potentially illegal.

What do EOS and Facebook have in common? Both are mistrusted ecosystems with fines by the FTC to prove it.

It was announced in October 2019 by the SEC, the U.S. Securities and Exchange Commission, that EOS maker Block.One must pay $24 million in penalties for conducting an unregistered securities sale.

This was not a big surprise after the FTC’s going after Kik, as the economic consequences of ICOs begin to really come home. Considering how much they raised however, the fines were not very steep.

Think about it, both Facebook and EOS got slap on the wrists, if you remember that Block.One had the biggest ICO of them all, with EOS having among the least decentralized governance.

The SEC said in a press release that Block.One “raised the equivalent of several billion dollars” over a one-year period in an unregistered initial coin offering (ICO). (A total of $4.1 billion was raised.) Block.One agreed to settle the charges, according to the SEC.

It makes you wonder about the state of crypto regulation and the advent of blockchain startups, and which can survive the climate. I personally know a lot of blockchain startups that were not able to get enough funding in ICOs, from or by means of crypto-friendly private venture capital.

Block.one conducted an unregistered initial coin offering of digital tokens (ICO) that raised the equivalent of several billion dollars over approximately one year. The company agreed to settle the charges by paying a $24 million civil penalty. $24 million compared to the $4.1 billion raised, does that even make sense?

EOS has itself been a very controversial “blockchain” network and I’ve written many times about its fraudulent nature and flawed leadership structure. It’s also like Ripple, a company backed altcoin, which means it’s not even decentralized.

According to the SEC’s order, Block.one, which has operations in Virginia and Hong Kong, conducted an ICO between June 2017 and June 2018. The order finds that Block.one stated it would use the capital raised in the ICO for general expenses, and also to develop software and promote blockchains based on that software.

Block.one did what you might have expected from a bunch of crypto profiteers. The company neither admitted nor denied any wrongdoing.

Coindesk noted that the fine amounts to 0.58 percent of the initial raise. So you can hammer Kik out of existence with “Kin”, but for some reason, EOS is hardly impacted at all? So much for fairness in crypto regulation and SEC auditing.

Block.one did not register its ICO as a securities offering pursuant to the federal securities laws, nor did it qualify for or seek an exemption from the registration requirements. In other words, they didn’t even attempt to play by the rules.

The company has also been granted a waiver which means it won’t be subject to any ongoing restrictions that would usually apply to a settlement of this kind. The investigation was conducted by Luke M. Fitzgerald and Tuongvy Le, and was supervised by John O. Enright, of the SEC’s Cyber Unit and New York Regional Office.

One has to wonder at the fate of EOS: if Ethereum is a legit ecosystem of blockchain innovation, what is EOS?

There was also barely any press about this fine, when crypto coverage used to be pretty significant in the mainstream and tech media. Reuters and Engadget covered it in what can only be considered highly summarized reporting.

Several blockchain startups didn’t do their legal due diligence it would appear when they conducted initial coin offerings. Companies that offer or sell securities to US investors must comply with the securities laws, irrespective of the industry they operate in or the labels they place on the investment products they offer.

As Facebook is pursing blockchain and crypto with Libra, Block.One, the company behind EOS, announced “Voice”, a kind of social app powered by EOS in June 2019. Block.one says Voice will stand out by not turning its users into products. It can only be assumed this was the usual crypto dig against Facebook.

Meanwhile, we haven’t heard much about Voice in the last few months. Crypto content and social media ecosystems are a dime a dozen. The suppression of crypto-related projects in the media must be significant. As Facebook’s apps pivot to privacy, Block.One’s Voice app is going public, presumably in 2020.

Voice will run on the EOS blockchain, which is also upgrading to a faster Version 2.0. By using the public chain, everything posted to EOS will be public.

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