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Block.one SEC Settlement Summary

Core Content

This document outlines Block.one's request for a waiver from the U.S. Securities and Exchange Commission (SEC) to avoid disqualification from relying on Regulation A and Regulation D due to a proposed cease-and-desist order resulting from an administrative proceeding. The settlement is related to the sale of 900 million ERC-20 Tokens between June 26, 2017, and June 1, 2018, which the SEC alleges violated Sections 5(a) and 5(c) of the Securities Act of 1933 by offering and selling securities without proper registration or exemption.

Key Points

1. Proposed Order and Disqualification

• The SEC proposes an Order Instituting Cease-and-Desist Proceedings under Section 8A of the Securities Act.
• The Proposed Order would disqualify Block.one and its affiliates from relying on Regulation A and Regulation D.
• Block.one seeks a waiver under Rule 262(b)(2) and Rule 506(d)(2)(ii) to continue using these exemptions for future offerings.

2. Background of the Violation

• Block.one sold ERC-20 Tokens in Dutch-style auctions, which were not the same tokens used on the EOSIO blockchain.
• These tokens were fixed and nontransferable on the Ethereum blockchain after the sale.
• The SEC alleges that the sale constituted an unregistered securities offering, violating Sections 5(a) and 5(c) of the Securities Act.

3. Block.one's Remedial Actions

• Block.one has taken significant steps to enhance its legal and compliance expertise.
• As of September 2019, it has 16 legal and compliance staff in Hong Kong and the U.S., including a Chief Legal Officer and General Counsel with extensive experience in securities laws.
• It has also hired finance and risk personnel, and expanded its cybersecurity and venture capital teams.
• Block.one is developing technology tools to support compliance with securities laws, including identity verification and transfer restrictions.

4. Future Compliance and Regulatory Engagement

• Block.one is actively engaging with the SEC and FinHub to ensure future offerings comply with securities laws.
• It plans to use Regulation D or Regulation A for future token distributions, such as the Voice token, and is working with legal counsel to structure these offerings appropriately.
• The company intends to design digital assets that are true cryptocurrencies or fully compliant with U.S. securities laws if deemed investment contracts.

5. Impact of Denying the Waiver

• A denial of the waiver would prevent Block.one and its affiliated funds from relying on Regulation D, limiting their ability to raise capital for innovation and growth.
• This could hinder Block.one's ability to invest in and support U.S. and global startups, thereby reducing its capacity to contribute to the development of blockchain technology.
• It may also deter strategic partners and investors from engaging with Block.one, affecting its competitive position and long-term value creation.

6. Strategic Importance of Regulation D and A

• Regulation D and A provide cost-effective and efficient ways for Block.one to raise capital and distribute tokens.
• Without these exemptions, Block.one may face significant challenges in deploying funds to support its technology initiatives and maintaining access to U.S. capital markets.

Conclusion

Block.one is requesting a waiver to continue using Regulation A and D for future offerings, emphasizing its commitment to compliance and the strategic importance of these exemptions for its growth and innovation. The company believes that the proposed settlement does not involve criminal or scienter-based violations and that it has taken substantial measures to ensure future regulatory compliance.