Esports betting startup Unikrn to pay $6.1 million in SEC settlement for unregistered initial coin offering

Seattle startup Unikrn will pay a $6.1 million fine and deactivate its UnikoinGold (UKG) cryptocurrency to settle Securities and Exchange Commission charges that the eSports betting firm made an initial bid for unregistered coins in violation of federal securities laws.

Unikrn, led by CEO Rahul Sood, a seasoned entrepreneur who previously oversaw Microsoft’s venture capital arm, agreed to pay the penalty without admitting or denying the SEC’s charges.

The company, which has been backed by celebrity investors including Mark Cuban and Ashton Kutcher, raised $31 million in an initial coin offering three years ago. In charging the company, the SEC said Unikrn “did not register the offering or receive an exemption.”

The $6.1 million settlement represents “substantially all of the Company’s assets,” the SEC said in a press release.

In a statement on its website, Unikrn said the SEC issued post-ICO guidelines that “applied retroactively, raised many questions regarding the future of UKG.”

“Unikrn’s priority was to grow and innovate the Unikrn platform while trying to find common ground with the SEC that would allow us to promote the merits of UKG,” the company said. “Other than that, our other option was to come to terms with the UKG’s past and shut it down so that our energies could be effectively directed.”

In a public statement, SEC Commissioner Hester Peirce said she disagreed with her colleagues’ ruling that the ICO constituted a securities offering.

“While many SEC enforcement actions in this space include allegations of fraud, Unikrn falls into the narrower category of token issuers accused solely of violating Section 5 of the Securities Act” , said Peirce. “In other words, Unikrn would have offered and sold its tokens under an unregistered offering and in a manner that was not eligible for an exemption; it is not alleged that he engaged in fraud in doing so.

She continued: “The challenge of discerning a clear legal line is particularly difficult when it comes to new forms of business and new technologies. Entrepreneurs can be forced to choose between unpleasant options: spend their limited capital on costly legal consultation and compliance or give up their pursuit of innovation for fear of being the subject of legal action. A regulatory safe harbor could resolve this unfortunate dilemma.

Kristina Littman, head of the SEC Enforcement Division’s Cyber ​​Unit, said in a statement that the settlement “allows us to return substantially all of Unikrn’s assets to already harmed investors and includes measures to prevent future sales to retail investors, including token deactivation.

Asked about the financial implications of the settlement, Sood told GeekWire via email, “Unikrn will continue to operate our business, we just had to put this behind us so we can focus on the future. We’re not going anywhere.

Unikrn also reached a settlement with the Washington State Department of Financial Institutions for violating state registration provisions related to its ICO.

ICOs are a controversial and popular mechanism for businesses – typically in the blockchain and cryptocurrency industries – to raise funds. Anyone, not just accredited investors, can purchase tokens to trade for items on the issuing company’s platform, or convert to more common cryptocurrencies such as Bitcoin and Ethereum.

Founded in 2014, Unikrn runs an esports betting platform across the globe, allowing people to bet on eSports matches just like they do with traditional sports.

“While this agreement also means that Unikrn will have to discontinue support for UnikoinGold, it will not prevent us from innovating on payments and on the blockchain,” the company said. “We will continue to offer betting and other regulator-approved services with major currencies including: Fiat Currencies, Bitcoin, BitcoinCash, Ethereum, Dogecoin, GUSD, USDC, PAX, BUSD, Ripple and others. Going forward, Unikrn will also consider other options internationally based on community feedback.

In 2018, Unikrn was sued over allegations that the company circumvented federal regulations during the ICO.

See the full SEC order below.