THE Securities and Exchange Commission (SEC) has denied the petition of businessman Joseph H. Calata’s group to lift the halt order on the initial coin offering (ICO) of online agricultural marketplace Krops.
In a decision dated March 2, the SEC en banc declared as permanent the cease and desist order (CDO) against Black Cell Technology, Inc., Black Sands Capital, Inc., Black Cell Technology Ltd., and Krops.
The commission emphasized the Black Cell group’s offering of Krops tokens through an ICO was illegal, as the company failed to register the securities with the SEC.
ICOs are typically used by start-ups to raise capital, where a company issues a percentage of the virtual currency it holds to interested buyers in exchange for fiat currency, another virtual currency, or another asset or security.
In its petition seeking to lift the CDO, the Black Cell group argued the Krops tokens were not securities after failing to meet one of four elements in the Howey Test, a measure used to evaluate investment contracts.
The company cited a similar case in the United States involving Bytom’s ICO. In this case, the US SEC ruled Bytom was not a security since profits are gained from the use of the Bytom, not merely by holding it.
“This is similar to the instant case. The profits to be gained are not primarily from the mere holding of the token by its use,” the Black Cell group said.
The Philippine corporate regulator, however, ruled the Krop tokens were securities, noting the Bytom case cited by the group was false, wherein the comment came from a San Francisco-based law firm, instead of the US SEC.
“To dress this opinion as a US SEC decision constitutes a patent deceit on the part of respondents,” according to the SEC.
The Black Cell group further argued the SEC cannot prevent it from conducting the ICO as it was a global exercise, whereas the regulator’s jurisdiction covered only the Philippines.
The SEC treated this as an admission that the company has been offering unregistered securities within the Philippines.
According to the company’s Web site, the Krops ICO is currently closed following strong demand from investors. The offering will continue on March 15. — Arra B. Francia