After a thorough investigation by the US Securities and Exchange Commission (SEC), the blockchain cloud-storage provider Sia has been charged with an unregistered securities offering and conversion scheme which they conducted back in 2014 and 2015, and which is a violation under Section 5 of the Securities Act of 1933. Sia agreed to pay any fines related to the violation as a positive sign of professional ethics and values, although they didn’t accept or refuse the charges.
The said unregistered token sale and conversion scheme was the offering and sale of Sianotes and conversion of these Sianotes into Siafunds in 2015. According to the blog post, Sia’s parent company, Nebulous raised $120k in the coin offering of Sianotes. In the initial days of blockchain, Sianotes weren’t anticipated to become securities by the company. They offered a conversion scheme into Siafunds afterward.
According to the cloud storage provider, Sia has always believed in a two-token model, where Siacoins would be used as operational tokens for the provision of cloud storage and Siafunds would be an investment tool where the investors would share the revenues of the storage. People have ever since resorted to Sia in humongous numbers, storing over 500 Terabytes of data on the Sia network. Shortly after, Sia introduced Sianotes with no knowledge of whether they would be deemed as securities onwards.
The main issue arose with the Siafunds coin offering in 2018. Although Nebulous had an idea that the SEC might consider Siafunds as securities after the SEC’s DAO report of 2017. Sia conducted a tokenized security offering complying with all the legalities. SEC still started an investigation looking into the matter. After a thorough investigation into the case and learning about all the tokens, their offerings, and other schemes SEC charged Nebulous with the failure to register the 2014 offering, as the SEC declared Siafunds as securities. The settlement ended with an agreement by Nebulous that they would pay disgorgement of $120k along with penalties which all adds up to a hefty fine of $255k. The SEC didn’t halt any operations on the Sia network or put any other allegations on the parent company after the investigation.
To keep a clean slate and as a gesture of compliance with legal procedures, Sia has agreed to pay all the fines although there hasn’t been any statement where they agree to or deny the allegations. In fact, they’ve blamed their lack of knowledge for the violation. According to Zach Herbert, the COO of Nebulous:
“Given that Nebulous had properly registered its 2018 offering of Siafunds in the wake of the SEC’s 2017 guidance regarding digital assets, we were disappointed that the SEC chose to take action with respect to the relatively small offering conducted years before we had the benefit of that guidance. However, beyond that, we are pleased with how the company and the network fared under such intense regulatory scrutiny and that after a thorough investigation, the SEC asserted no claims regarding Siacoins or the current operations on the Sia network.”
The SEC has been in motion with these investigations and a few days before, they also notified Block. One that they must pay a total of $24 million for an unregistered securities sale, where they raised an “equivalent of 7 billion dollars” according to the press release of the SEC. The fine amounts to 0.58% of the concerned initial raise. Although Block. One had their issues with the hefty fine and how the concerned coins weren’t in circulation anymore, they still didn’t agree or deny to the allegations and agreed to the settlement much like Nebulous. They issued a statement stating:
We are excited to resolve these discussions with the SEC and are committed to ongoing collaboration with regulators and policy makers as the world continues to develop more clarity around compliance frameworks for digital assets.