SEC Charges ICO Superstore TokenLot LLC and Owners Lenny Kugel & Eli L. Lewitt With Operating As Unregistered Broker-Dealers (2024)

The Securities and Exchange Commission announced that TokenLot LLC, a self-described “ICO Superstore,” and its owners will settle charges that they acted as unregistered broker-dealers. This is the SEC’s first case charging unregistered broker-dealers for selling digital tokens after the SEC issuedThe DAO Reportin 2017 cautioning that those who offer and sell digital securities must comply with the federal securities laws.

According to the SEC’s order, TokenLot, Lenny Kugel, and Eli L. Lewitt promoted TokenLot’s website as a way to purchase digital tokens during initial coin offerings (ICOs) and also to engage in secondary trading. Michigan-based TokenLot received orders from more than 6,100 retail investors and handled more than 200 different digital tokens, which the SEC found included securities. The business’s profits included trading profits and a percentage of the money that TokenLot raised for ICOs. Their activities required TokenLot, Kugel, and Lewitt to be registered with the SEC as broker-dealers, but they were not. TokenLot operated from July 2017 through late February, with most of its business occurring after The DAO Report on the applicability of securities laws to digital assets. According to the order, in response to the SEC’s investigation, TokenLot voluntarily began winding down and refunding investors’ payments for unfilled orders. TokenLot, Kugel, and Lewitt also were charged with violating the registration provisions in connection with their conduct.

“U.S. securities laws protect investors by subjecting broker-dealers and other gatekeepers to SEC oversight, including those offering ICOs and secondary trading in digital tokens,” said Stephanie Avakian, Co-Director of the SEC’s Enforcement Division. “We continue to encourage those developing digital asset trading businesses to contact the SEC staff at[emailprotected]for assistance in analyzing registration and other securities law requirements.”

“The penalties in this case reflect the prompt cooperation and remedial actions by TokenLot, Kugel, and Lewitt,” said Steven Peikin, Co-Director of the SEC’s Enforcement Division. “TokenLot, Kugel, and Lewitt provided valuable information to Commission staff, stopped the conduct, and refunded money to investors.”

Without admitting or denying the SEC’s findings, TokenLot, Kugel, and Lewitt consented to the SEC’s order and agreed to pay $471,000 in disgorgement plus $7,929 in interest, and they will retain an independent third party to destroy TokenLot’s remaining inventory of digital assets. Kugel and Lewitt also agreed to pay penalties of $45,000 each and agreed to industry and penny stock bars and an investment company prohibition with the right to reapply after three years.

The SEC’s investigation was conducted by Kathleen Hitchins, Ann Rosenfield, and Carolyn Welshhans of the Enforcement Division’s Cyber Unit and supervised by Cyber Unit Chief Robert A. Cohen.

https://www.sec.gov/news/press-release/2018-185

This securities law blog post is provided as a general informational service to clients and friends of Hamilton & Associates Law Group and should not be construed as, and does not constitute, legal and compliance advice on any specific matter, nor does this message create an attorney-client relationship. Please note that the prior results discussed herein do not guarantee similar outcomes.

Hamilton & Associates Law Group, P.A provides ongoing corporate and securities counsel to private companies and public companies listed and publicly traded on the Frankfurt Stock Exchange, London Stock Exchange, NASDAQ Stock Market, the NYSE MKT and OTC Markets. For two decades the Firm has served private and public companies and other market participants in corporate law matters, securities law and going public matters. The firm’s practice areas include, but are not limited to, forensic law and investigations, SEC investigations and SEC defense, corporate law matters, compliance with the Securities Act of 1933 securities offer and sale and registration statement requirements, including Regulation A/ Regulation A+ , private placement offerings under Regulation D including Rule 504 and Rule 506 and Regulation S and PIPE Transactions as well as registration statements on Forms S-1, Form F-1, Form S-8 and Form S-4; compliance with the reporting requirements of the Securities Exchange Act of 1934, including Form 8-A and Form 10 registration statements, reporting on Forms 10-Q, Form 10-K and Form 8-K, Form 6-K and SEC Schedule 14CInformation and SEC Schedule 14A Proxy Statements; Regulation A / Regulation A+ offerings; all forms of going public transactions; mergers and acquisitions; applications to and compliance with the corporate governance requirements of national securities exchanges including NASDAQ and NYSE MKT and foreign listings; crowdfunding; corporate; and general contract and business transactions. The firm provides preparation of corporate documents and other transaction documents such as share purchase and exchange agreements, stock purchase agreements, asset purchase agreements and reorganization agreements. The firm prepares the necessary documentation and assists in completing the requirements of federal and state securities laws such as FINRA and DTC for Rule 15c2-11 / Form 211 trading applications, corporate name changes, reverse and forward splits, changes of domicile and other transactions. The firm represents clients in London, Dubai, India, Germany, India, France, Israel, Canada and throughout the U.S.