Gladius Network, a provider of blockchain-enabled cybersecurity services, is facing charges in connection with its unregistered initial coin offering (ICO). The Securities and Exchange Commission (SEC) accused the company of violating the Securities Act
According to the SEC, in late 2017, Gladius Network conducted an ICO and raised approximately $12.7 million in GLA tokens. The company plans to use the fund to develop a network, in which ICO participants could rent spare computer bandwidth and storage space to defend their servers against certain cyberattacks and improve content delivery. However, the company failed to register its ICO under the securities laws.
Prior to its ICO, the Commission released a DAO Report of Investigation warning that ICOs can be securities offering.
Gladius Network self-reported its violations to the SEC
In August 2018, Gladius Network self-reported its violation with the SEC’s Enforcement staff. The company also stated its intention to take immediate actions to correct its mistake and comply with securities laws.
During the Commission’s investigation of its wrongdoing, Gladius Network cooperated voluntarily and extensively. It provided relevant information and documents, allowing a quick and efficient completion of the probe.
The SEC did not impose a civil penalty against Gladius Network because it self-reported its violations and cooperated with the investigation. In addition, the company agreed to take immediate remedial steps, agreed to returns funds to investors, and register its GLA tokens as a class of securities.
The Commission ordered the company to cease and desist from committing or causing any violations and any future violations of the Section 5(a) and (c) of the Securities Act.
In a statement, Robert A. Cohen, Chief of the SEC’s Cyber Unit, said, “The SEC has been clear that companies must comply with the securities laws when issuing digital tokens that are securities. Today’s case shows the benefit of self-reporting and taking proactive steps to remediate unregistered offerings.”
The SEC recently imposed penalties against two companies that conducted unregistered ICOs. The companies also agreed to similar undertakings.