On February 16, 2018, the U.S. Securities and Exchange Commission suspended trading in the securities of Cherubim Interests, Inc., PDX Partners, Inc. and Victura Construction Group, Inc. – each of which was traded on the OTC Link (previously "Pink Sheets") – as a result of disclosures that such companies made about their blockchain-related initiatives.
Specifically, the SEC suspended trading in each of the companies because of concerns regarding the accuracy and adequacy of information in the marketplace about, among other things, the nature of its business operations and the value of its assets, including in press releases issued beginning in early January 2018 about the acquisition of AAA-rated assets from a subsidiary of a private equity investor in cryptocurrency and blockchain technology. With respect to Cherubim Interests, Inc., the order also cited that company's execution of a financing commitment to launch an initial coin offering ("ICO") and its delinquency in its periodic filings with the SEC (having not filed its annual report on Form 10-K for the fiscal year ended August 31, 2017 or its quarterly report on Form 10-Q for the quarter ended November 30, 2017).
The suspensions of trading, which were issued pursuant to Section 12(k) of the Securities Exchange Act of 1934, suspend trading in the securities of the respective companies from February 16, 2018 through March 2, 2018.
"This is a reminder that investors should give heightened scrutiny to penny stock companies that have switched their focus to the latest business trend, such as cryptocurrency, blockchain technology, or ICOs", said Michele Wain Layne, Director of the Los Angeles Regional Office of the SEC.
As a result of these actions, it is clear that, in this heightened and uncertain regulatory climate, companies should think critically not only about their decision to engage in an ICO (and the myriad issues that arise from such a decision, including whether or not the related tokens are "securities" under the securities laws of the United States), but also about their decision to change their business model to focus on cryptocurrencies and blockchain technology, and the disclosures that they make in connection with such decisions.
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