Many prominent ICOs have renewed reason to feel anxious, after the Wall Street Journal reported November 15 that the U.S. Securities and Exchange Commission (SEC) has opened an investigation and issued subpoenas to Salt Lending Holdings Inc., which in August 2017 sold $50m in SALT tokens in an Initial Coin Offering (ICO) to be used as startup capital for their lending platform.
The crux of the SEC’s investigation is said to be whether Salt’s token sale constitutes an unregistered securities offering, and will involve looking at how the proceeds from the ICO were deployed and the way that tokens were distributed to team members. It is also claimed that Salt’s former board member Erik Voorhees could be in trouble if the SEC decides he breached his five-year ban from participation in virtual currency security offerings. Voorhees was charged by the SEC in 2014 for failing to register his public share offerings in startups SatoshiDice and FeedZeBirds.
The investigation will also undoubtedly scrutinize the mechanics behind the Salt token’s utility within its ecosystem. Salt claims that their native token only serves ‘utility’ purposes, but the SEC may have a different view, which could spell problems for the hundreds of recent ICOs that have used the ‘utility token’ defense to skirt regulations designed to protect investors or otherwise make the most of a hoped-for grace period.
The news has only added insult to injury for Salt. According to a November 16 Cointelegraph report, the company is also dealing with a private lawsuit in the U.S. state of Colorado from a former CFO claiming that Salt gave more favorable loan terms to insiders and their families, and that the company lost $4 million in a February hack.