Block.One Vs SEC – How EOS’ Parent Company Got Away With a Small Fine For its Unregistered ICO

By Vinnie Singh
Published October 2, 2019 Updated October 2, 2019
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Block.One (EOS)

Block.One Vs SEC – How EOS’ Parent Company Got Away With a Small Fine For its Unregistered ICO

By Vinnie Singh
Published October 2, 2019 Updated October 2, 2019

EOS’ parent company, the Block.One was in the soup with the US SEC for conducting an unregistered Initial Coin Offering (ICO) in the US. While the crypto community was expecting the SEC to impose several penalties on the company, Block.One was let off rather lightly with just a $24 MM fine. Katherine Wu, former Director of Business Development at Messari, and the current Principal at Notation Capital have dissected Block.One’s settlement with the SEC to reveal that the key to getting away with violating SEC’s regulations is “be cooperative”.

Katherine Wu’s Take on the Waiver Letter from EOS’ Lawyers to SEC

The SEC had proposed a “Cease and Desist” order against Block.One for violating SEC’s regulations and conducting an unregistered Initial Coin Offering (ICO). The proposed order could have led potentially forced Block.One to put a stop to their operations.

The letter that was sent from EOS’ lawyers to the SEC sought “a waiver of any disqualification that will arise under Regulation A and Regulation D with respect to or any of its affiliates as a result of the entry of the Proposed Order.” The letter admits that the Block.One’s activities violated sections 5(a) and 5(c) of the Securities Act as the company sold unregistered securities to US-based persons.

But, the letter also points to the fact that the proposed order had described “activities that involve the offer and sale of a security, but do not involve a criminal conviction or a violation of any anti-fraud statutes – scienter or nonscienter based”. Therefore, “ will not be held to a “greater” burden under the Division’s waiver policy”. According to Katherine Wu, this is a big win for EOS as the SEC said that there was no fraud or criminal conviction in the sale.


The letter further explains how Block.One ensured the “Responsibility of Conduct”. It first explains how Block.One tried to disable US-based persons from purchasing the ERC20 tokens by using “geoblock” to prevent anyone with a US-based IP address from buying tokens on the EOS.IO website. It also stated that the company had made it clear in their purchase agreement that US-based persons were prohibited from buying the ERC20 tokens in the token sale, and that those purchasing the tokens had to establish that they were not US residents.

Then the letter tried to establish how had try to fix the damage done. The letter says that Block.One has hired new executives after the token sale – its new Chief Legal Officer, Chief Financial Officer and current General Counsel are “primarily responsible for ensuring compliance with securities laws generally and Regulation D or Regulation A specifically”. The letter also reveals that the members of the executive committee have been “educated by experienced outside securities counsel on procedures required for compliance with securities regulations generally and Regulation D specifically”.

Further, the letter elaborates on how Block.One’s team members are working towards ensuring legal and regulatory compliance. Wu takes a dig at Block.One by saying that it is trying to show that “there are grown-ups are EOS today.”

After establishing the strength of the EOS team, the letter tries to convince the SEC that its intention is to digital assets that are true cryptocurrencies and ensure that they are fully compliant with the requirements of the US securities laws. Block.One says that with a special reference to the Voice platform which it started on the EOSIO blockchain software in June this year.

“If the Voice tokens or any future digital asset developed by are made available to U.S.-based individuals by, or if allows for distribution or transfer of any such digital asset to U.S.-based individuals, has engaged and will continue to engage experienced U.S. securities counsel to work with its internal legal and compliance team to consider and apply such guidance in structuring the Voice platform, designing any distribution of the Voice token and managing public statements by”

The letter repeatedly emphasizes on how it will not repeat its previous mistakes again – it will work closely with its securities counsel in any activities involved with Regulation D. Wu says that this is how Block.One got away with just a $24 MM fine – by being “cooperative”.

Block One’s Billion-dollar Fund

Next, the letter talks about how Block.One and third parties would be affected if the waiver was denied. It shares that a $1 Bn from the Token Distribution proceeds has been allocated towards offering “developers and entrepreneurs the funding they need to create community-driven businesses leveraging EOSIO software”. It further tries to convince the SEC that the denial of the waiver will lead to an inability of the company “to deploy capital for investment in securities issued by U.S.-based small businesses and growth-stage companies”. The same would not be beneficial for’s shareholders “as capital may be forced to sit idle rather than being deployed to growth-stage technology companies across the globe”.

However, the company also shirks off responsibility for delivering products that can be deployed. The letter says –

“ is a growth stage company focused on developing novel, innovative technology. has spent and will spend large amounts of capital to invest in the research and development of new technology, but as in any R&D program, it is possible that many of these efforts may never be deemed viable for deployment.”

Block.One also stresses that disqualification from reliance on Regulation D will also limit the company’s fundraising options. According to the letter, the denial of the waiver is likely to be disadvantageous to as it will hinder “strategic growth partners, technology partners or acquisition targets that are essential to continuing to innovate, grow, support the EOSIO blockchain software and create value for its shareholders”.

Finally, the letter arrives at the request for a waiver from the disqualification of from relying on Regulation A and Rule 506 of Regulation D. The letter says that it is not “necessary”.


The SEC Settlement

Block.One’s lawyers undoubtedly did a good job with convincing the SEC of the importance of letting go off Block.One without a harsh penalty.

The order mentioned various instances of Block.One’s violation of the laws. First, it mentioned that EOS has not ascertained from purchasers of tokens on the EOS.IO website if they were US-based persons or not. Secondly, it pointed to the fact that Block.One had actively marketed its ICO in the US. Block.One had participated in many conferences in the US, including a major one held in New York on May 2017, and marketed its ICO in the conferences. The company had also advertised EOSIO on a billboard in the Times Square around the same time. The EOS website, its white paper, social media handles, promotional statements, etc. were available to US-based persons.

Thirdly, during the token sale, the tokens were listed on many trading platforms that were available to US-based persons as well, and Block.One did not try to “prevent the ERC-20 Tokens from being immediately re-sellable to U.S.-based purchasers in secondary market trades”.

The order also described how the purchases of Block.One’s ERC20 tokens could have reasonably expected that they would profit from the efforts of the company. Firstly, Block.One was raising funds to build a profitable enterprise and it was easy for token holders to understand that if the company was successful in doing so, they would profit from the tokens.

Secondly, purchasers of tokens would have understood that Block.One was a for-profit entity. Thirdly, Block.One had announced the billion-dollar fund that it had allocated to help initiatives that “returned value to the network.” This could also be assumed as third-party efforts in aiding the growth of EOS tokens.

Fourthly, Block.One had “actively engaged U.S. purchasers and potential U.S. purchasers on social media, online message boards, and other outlets”. In marketing the EOSIO software, had also influenced US-based purchasers to rely on the expertise and vision of the EOS founders “to secure the widespread adoption of the EOSIO software and anticipated launch of one or more EOSIO blockchains”.

The order then established that in doing all of the aforementioned things, Block.One had violated section 5(a) and section 5(c) of the Securities Act. In simple words, it had offered unregistered securities to US-based persons.

However, despite having a very strong case against Block.One, the SEC let the company off with just a $24 MM fine and a warning to not engage in any violations of Section (a) and Section (c) of the Securities Act in the future. The $24 MM will be transferred to the general fund of the US Treasury.

SEC’s Decision Leaves Community Bewildered

The light penalty that Block.One has been given has left the crypto community bewildered with many questions. As Katherine Wu stated, perhaps, companies can get away with violations simply by being “cooperative”.

Marco Santori, the President and Chief Legal Officer also shared his analysis of the SEC order which seemed to suggest that the SEC had not looked at all the aspects of the token sale. According to Santori, the SEC had focused on the intermediary ERC20 token and not on the native EOS token which was ultimately launched on the blockchain. Secondly, Block.One’s token raised money from global investors, while the SEC was concerned only with US-based investors. The small fine amount could have been calculated on the basis of the money Block.One raised by US investors. The complete analysis can be found here.

Eric Voorhees, the CEO of tweeted that the most important part of the SEC settlement was the way the pre-product, pre-launch token and the post-product, the post-launch token was treated.

Source: Twitter

Crypto Researcher Larry Cermak took a dig at the SEC with his OP-ED piece titled “Don’t ask for permission, hire good lawyers and then ask for forgiveness”.

What do you think about SEC’s decision on EOS? Should EOS have been given a harsher penalty? Has the SEC done the crypto community a favor by not clamping down EOS’ operations? Share your views with us in the comments below!


The presented content may include the personal opinion of the author and is subject to market condition. Do your market research before investing in cryptocurrencies. The author or the publication does not hold any responsibility for your personal financial loss.
About Author
Vinnie Singh
72 Articles
All things Blockchain & Crypto. 3 years for writing for Crypto Publications, ICOs and Blockchain cos. Book Junkie. Travel Freak. Food rules my mood. Enough said. Follow me on twitter @vinniesingh7 or mail me at vinnie[at]