The Biggest Fines Ever Imposed On Crypto Companies

Whether you love, like, or loathe them, regulators gonna regulate. And when you sell unregistered securities, they gonna regulate a whole lot. These are the biggest fines imposed on crypto companies to date: financial penalties levied for a range of offences, all of which can be bundled under the banner “Pissing off the SEC.”

Airfox and Paragon – $27.5 million

Airfox and Paragon were the first victims of civil penalties issued by the Securities and Exchange Commission (SEC) in November, 2018. The companies raised a total of $27 million by selling digital tokens in ICOs conducted during the height of the 2017 boom. The SEC then cracked the whip, ordering the firms to refund all investors, pay $250k a piece as a penalty and file periodic reports with the Commission. Last we heard, Airfox and Paragon had missed the original deadline to repay investors, with liabilities massively exceeding assets.

Block.one – $24 million

Block.one, the firm behind the biggest initial coin offering (ICO) in history, was slapped with a $24 million fine by the SEC last year. The SEC were insistent that the year-long EOS sale which raised $4 billion was an “illegal unregistered securities sale” since the company did not register the ICO as a securities offering pursuant to the federal securities laws. 

Block.one – registered in the Cayman Islands but with operations in Virginia and Hong Kong – ponied up with minimal fuss, perhaps in acknowledgement that the sun had set on ICOs. To save you opening the Calculator app, the civil penalty swallowed by Block.one was a mere 0.6% of the capital raised in the “illegal” ICO. We’re guessing the company’s rockstar attorney Brian Klein was well compensated for negotiating that settlement. 

Bitqyck – $10 million

Dallas-based crypto exchange Bitqyck also fell foul of the SEC last summer, once again for violating securities laws. This time, the infractions were more labyrinthine though. According to the Commission, the exchange had “defrauded investors in securities offerings of two digital assets, Bitqy and BitqyM, and operated an unregistered exchange to permit trading in one of them, a digital token called Bitqy.” The unregistered securities offerings were said to have raised over $13 million from a pool of over 13,000 backers. 

In addition, Bitqyck was accused of portraying its daily deals platform QyckDeals as a “global marketplace,” enticing investors with false claims relating to smart contract-powered Bitqyck stock shares. Like Block.one, the firm’s top brass settled up for the ten mill and went on their merry way.

Longfin Corp – $6.8 million

A fraudulent public offering and Nasdaq listing got Longfin Corp in trouble last year, with the company also accused of fabricating over $66 million worth of revenue from shady commodities transactions. 

After three unnamed affiliates were ordered to pay $26 million in disgorgement and penalties related to a 2017 sale of Longfin stock, the company was penalized to the tune of $6,755,848 in September, 2019. Given that Longfin wound up in late 2018, we’re guessing the SEC might struggle to collect on that sum. Earlier this year, Longfin CEO Venkata Meenavalli settled a separate fraud action against him personally, by paying $400,000 in disgorgement and penalties. 

Akuna Capital – $1.3 million

As reported by the Wall Street Journal, options and equity exchange Cboe Global Markets last year hit crypto firm Akuna Capital with a $1.3 million penalty. The crime? Including improper options trades in an auction linked to its own VIX volatility gauge. In other words, Akuna submitted S&P 500 options orders (about 500 in total) to improve the chances of certain derivatives bets being included in the auction that helps decide VIX settlement values. Sneaky.

And there’s plenty more where that came from. No less than 11 class action complaints alleging sale of unregistered securities were recently filed against 42 crypto issuers and exchanges in Manhattan. Firms in the firing line include some of the biggest names in crypto. The world’s largest exchange Binance, for example, as well as Block.one, BitMEX, Tron and KuCoin. Philippe Selendy – who famously got 16 banks on the hook for $25 billion in fines due to their exploits in the subprime mortgage market – is one of the main suits filing the complaints. 

In an interview with modernconsensus.com, Jason Gottlieb, a partner at law firm Morrison Cohen LLP, suggested it “may be quite a while before service is fully executed in some of these cases.” Nonetheless, the prevailing narrative is clear: the regulators are watching, and crypto must put its house in order or face the consequences.

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