In a somewhat surprising move, the Securities and Exchange Commission (SEC) entered into a $24 million settlement with Block.one on September 30, 2019, over its unregistered initial coin offering (ICO) that raised upwards of $4 billion. While the SEC’s pursuit of Block.one is consistent with the agency’s focus on regulating the cryptocurrency sphere, the SEC’s decision to settle with Block.one for only $24 million, which is less than 1% of the token sale as a fine, has raised eyebrows in the cryptocurrency world. The reason for the relatively small penalty may be due to an absence of intentionally deceptive conduct in connection with representations made to investors.

Block.one is a blockchain technology company based in Hong Kong and Virginia that developed EOSIO, which is a software operating system structured to underlie one or more EOSIO-based blockchains. Over the course of about one year, between June 26, 2017 and June 1, 2018, Block.one conducted an allegedly unregistered ICO of digital tokens and raised billions of dollars in the process. It publically offered and sold 900 million digital assets (ERC-20 Tokens) in exchange for Ether, a digital asset, to raise funds to develop the EOSIO software.

The SEC’s settlement, entered into by way of a cease and desist order (the “Order”), asserts that Block.one violated Sections 5(a) and 5(c) of the Securities Act of 1933 by offering and selling securities without the appropriate registration filed with the SEC. In the Order, however, the SEC does not allege that Block.one engaged in fraudulent conduct or otherwise lied to investors regarding the ERC-20 Tokens. Accordingly, the SEC’s imposition of a small penalty as well as its choice not to avail itself of other mechanisms, such as disgorgement or rescission, may reflect a conclusion by the agency that Block.one’s conduct did not amount to deliberate investor harm.

Block.one consented to the Order, but did so without admitting or denying the SEC’s findings. The company further noted in its press release that it received a waiver from the SEC “so that Block.one will not be subject to certain ongoing restrictions that would usually apply with settlements of this type.”

While the settlement has fueled speculation that the SEC’s regulation of the cryptocurrency sphere is inconsistent, or that the SEC is taking a softer approach to regulation, a review of the underlying allegations here suggests that is not so. Companies and individuals under SEC scrutiny in this space may take comfort from the fact that the SEC seems to be evaluating the facts on a case-by-case basis, rather than applying a one-size-fits-all approach.