The U.S. Securities and Exchange Commission (“SEC”) entered an order on Dec. 15, 2020 with Wireline, Inc., related to the company’s unregistered offering of securities using a simple agreement for future tokens (“SAFT”). Like Omar from the highly regarded HBO show, The Wire, who warned other characters, “You got me confused with a man who repeats himself,” the FinTech community appears to have the SEC confused with an agency that wants to repeat itself.
Wireline is a FinTech company that raised more than $16 million from investors using a SAFT to fund the development of a platform for the sale of components of larger software projects. Wireline represented to investors that the funds would be used to develop the Wireline microservices platform and that the tokens would be used as the means of exchange between software developers and end-users on Wireline’s marketplace. The SAFTs provided that upon the public release of Wireline’s marketplace, Wireline would distribute those digital tokens to investors, who were counterparties to the SAFTs. As part of the company’s efforts to raise funds from investors, Wireline distributed marketing materials that materially misrepresented the functionality of Wireline's platform and the timing of the token distribution. No tokens were ever distributed pursuant to the SAFTs.
The SEC concluded Wireline made materially false and misleading statements connection with the offer and sale of digital asset securities through SAFTs that were not registered pursuant to the federal securities laws and did not qualify for an exemption. The SEC found Wireline violated the antifraud provisions of Sections 17(a)(2) and 17(a)(3) of the Securities Act of 1933, and the registration provisions of Sections 5(a) and 5(c) of the Securities Act. Wireline agreed to a cease and desist order, to pay a penalty of $650,000 that will be distributed to investors, and to notify investors that tokens will not be distributed pursuant to the SAFTs.
The Wireline order is the most recent SEC action against a FinTech company that used the discredited SAFT model to raise capital with the mistaken belief that tokens associated with the SAFT would not be deemed securities.(1) The authors anticipate the Wireline order will not be the last SEC action against a FinTech firm that used as SAFT to raise capital and the SEC, like Omar will have to continue to repeat its views that tokens issued using a SAFT are illegally offered securities.