ShipChain is ordered to cease and desist in South Carolina.
The division of securities of the Office of the Attorney General of South Carolina ordered the start-up of blockchain ShipChain to stop operating in the state. The securities commissioner sent a cease and desist order to the company for allegedly violating the securities laws.
According to the request, ShipChain, which is a freight logistics platform built on Ethereum blockchain, has been "offering investment opportunities" in its project and promoting its tokens to residents of South Carolina both online and at live events, but has not registered as a broker to operate in the state. The ShipChain ecosystem is powered by ShipCoin, a cryptocurrency that is the only payment method on the company's platform.
"It is in the public interest, for the protection of investors, and in accordance with the purposes of the Act, that the Respondent be ordered to cease and desist from participating in the practices listed above, which constitute violations of the Act, and pay an appropriate civil sanction for his wrongdoing, "the order says.
The South Carolina securities law states that "investment contracts constitute securities," and it is illegal to sell securities that are not registered in the state. As a result, ShipChain, which is domiciled in Wilmington, Delaware, "made commercial transactions, as an unregistered stockbroker" and failed to comply with the law. The cease and desist letter was sent to ShipChain's lawyer, Julian Zegelman of Velton Zegelman in San Jose, California.
The investigation is ongoing and part of a broader sweep by the North American Association of Securities Administrators announced in recent days called "Operation Cryptosweep." The sweep is designed to "crack down on fraudulent Initial Currency Offers (ICO), investment products related to cryptocurrency and those behind them" throughout the United States and Canada. Dozens of investigations are pending or have been completed only in the month of May, and ShipChain is mentioned among them.
ShipChain is not accused of promising standing in the sky or operating a scam. The focus of the order is based on the fact that the company is marketing and selling investment contracts directly to residents of South Carolina without registering the digital currency as collateral.
ShipChain's management team has seen its share of legal problems. John Monarch appears to be named as a defendant in a 2015 lawsuit in which commercial competitors were fighting. There are allegations of a crime of blackmail fueled by cryptocurrencies and, reportedly, one of Monarch's friends and his co-defendant, Karl Steinborn, took his own life after being ordered to pay more than USD 3 million to the plaintiff, Richard Gorman .