In a recent development, the United States Securities and Exchange Commission (SEC) has settled with crypto firm Quantstamp following charges of violating securities law which the SEC leveled against it. Quantstamp agreed to settle with the SEC without admitting or denying the charges.
Part of the statement read:
Quantstamp agreed to a cease-and-desist order and to pay disgorgement of $1,979,201, prejudgment interest of $494,314, and a civil penalty of $1 million.
How Quantstamp Violated Securities Laws
Quanstamp raised over $28 million following its Initial Coin Offering (ICO) in October-November 2017 when it sold its native token QSP to close to 5,000 investors (including ones residing in the US).
The SEC alleged that these QSP tokens were a security when applied to the Howey test, and Quanstamp’s failure to register them violated federal securities laws. Quanstamp moved on to launch in 2017 as an automated smart contract security auditing platform. And according to the SEC, Quanstamp, during its ICO, sold this idea of its platform boasting huge potential.
The firm reportedly led these QSP purchasers to believe that Quanstamp’s success could make the value of the QSP tokens rise massively, convincing investors to purchase the tokens. The regulator alleges that Quanstamp’s actions fall under the key considerations for the Howey Test.
Under the Howey test, a transaction is considered a security if it contains these four elements; Investment of money; Investment being in a common enterprise; Investors expecting reasonable profits; Profits being derived from the efforts of others.
The regulator admits that the crypto firm filed for an exception from registering its offers and sales of QSP as it argued that the sale of QSP tokens to foreign investors was exempt from federal securities laws. However, Quantstamp failed to qualify for this exception by selling to non-accredited US investors.
QSP price stalls at $0.011 following SEC lawsuit | Source: QSPUSD on Tradingview.com
Quantstamp Failed To Deliver
Quanstamp surpassed its initial goal of $11 million by raising over $28 million from the ICO. This successful ICO is in stark contrast to the project’s fortune upon launch. Quanstamp was projected to disrupt the crypto industry with its innovative technology. However, cracks quickly showed in the system upon launch.
For one, the project received heavy criticism from investors for accepting other means of payment for audits instead of solely trying to promote the use of its QSP token. Investors claim that this went against the team’s promise to prop up the native token.
Additionally, there were signs which seemed to suggest that the team abandoned the project a few years after the ICO due to low activity.
QSP is currently trading at around $0.0108, over 98% down from its all-time high of $0.8664, which it achieved back in 2018.