The SEC recently suspended trading in shares of a technology company based in part over concerns about the company's upcoming planned initial coin offering ("ICO").
On August 9, the SEC issued a 10-day trading ban in shares of CIAO Group (recently renamed NuMelo Technology), which trades on the OTC markets. CIAO first announced plans for an ICO on July 6, and over the last several months has issued a number of vague statements about a revised business plan, under new management, to invest in African telecommunications projects. For example, NuMelo issued a press release saying that it intended to create "a single cryptocurrency on US trading platforms . . . [to] monumentally increase the liquidity of investments in African public companies, and give the average individual US investor new access to the extraordinary growth opportunities only found within frontier markets." The SEC's trading ban is set to expire on August 23.
Regulations authorize the SEC to unilaterally suspend trading in any stock for up to 10 business days. Among the grounds for a trading suspension are when serious "questions have been raised about the accuracy of publicly available information, including in company press releases and reports, about the company's current operational status, financial condition or business transactions." The SEC doesn't provide advance notice of a trading suspension. It also doesn't comment publicly on a company's status during the ban. And normal trading will not automatically resume after the 10-day suspension expires. For OTC-traded stocks -- like NuMelo here -- SEC regulations require broker-dealers to obtain pre-approval from FINRA before resuming quoting or facilitating trades. FINRA may deny the application, without further explanation, should it have continuing regulatory concerns about the company.
The SEC's action against NuMelo comes on the heels of inaugural guidance issued by the SEC in July 2017 concerning ICOs. As we reported earlier, the SEC issued a Report of Investigation concluding that digital tokens issued by a technology company in mid-2016 were "securities" under U.S. law that should have been registered with the SEC.
It remains to be seen whether the SEC's NuMelo trading suspension was motivated by concerns over the accuracy of the company's public statements generally or to chill the possibility of an ICO. What is clear, however, is that this latest agency action further underscores that ICOs and the market for digital currencies have the SEC's firm attention.
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