The U.S. Securities and Exchange Commission (SEC) has issued a Wells Notice to Unicoin, signaling its intention to file a lawsuit against the crypto investment firm. This action reflects the agency’s ongoing enforcement stance against cryptocurrency companies under outgoing Chair Gary Gensler, whose tenure ends in January.
SEC Accusations and Wells Notice Details
Unicoin, a crypto investment company, has become the latest target of a Securities and Exchange Commission (SEC) Wells Notice. Unlike other recipients, Unicoin’s unique structure and offerings differentiate it within the crypto space. The company, founded in 2015, has connections to the investment-themed television series Unicorn Hunters, which features high-profile figures, including Steve Wozniak and Lance Bass.
According to the Wells Notice reviewed by Fortune, the SEC intends to pursue allegations of fraud, deceptive practices, and the offering and sale of unregistered securities. While specific violations remain undisclosed, the notice marks a notable escalation, particularly with the inclusion of fraud-related accusations. Previous lawsuits against crypto companies, including Coinbase, did not involve such charges.
Unicoin CEO Alex Konanykhin revealed that the SEC’s crypto enforcement division issued warrants to his company and others in May. These warrants focused on Unicoin’s flagship product, a cryptocurrency reportedly backed by tangible real-world assets, including significant real estate holdings valued in the billions.
SEC Actions, Standstill Agreement, and Fraud Allegations
Konanykhin revealed that Unicoin entered a standstill agreement with the SEC earlier this year, restricting it from conducting an ICO or public offering. He stated that the agreement was breached following Donald Trump’s recent election victory. Unicoin had previously filed paperwork indicating plans to go public through a reverse merger.
The SEC’s Wells Notice reportedly includes fraud-related violations, marking a departure from the agency’s earlier actions against companies like Coinbase. With Chair Gary Gensler nearing the end of his term, it remains unclear whether the SEC will file formal charges before new leadership assumes office.
Unicoin’s Response, Token Model, and Real-World Assets
In response to the Wells Notice, Konanykhin stated that Unicoin’s legal team is preparing to submit their formal reply by December 24. He criticized the SEC’s approach to the case, attributing the agency’s actions to an attempt to halt Unicoin’s planned initial coin offering (ICO).
Konanykhin characterized the SEC’s claims as unfounded and expressed strong disagreement with the agency’s actions. However, he did not provide further details about the company’s defense strategy or how Unicoin intends to address the allegations. Konanykhin questioned the agency’s focus on Unicoin, given the company’s relatively untested securities model.
In 2022, Unicorn Hunters introduced Unicoin, a cryptocurrency collateralized by real-world assets, such as real estate. Earlier this year, Unicoin announced a deal acquiring approximately 8,000 acres of land in the Bahamas, reportedly valued at over $500 million, in exchange for future token offerings. CEO Alex Konanykhin claims the company has sold $3.5 billion worth of Unicoin tokens to approximately 70,000 investors. These deals included buy-now-pay-later agreements.
Unlike other crypto projects, Unicoin identifies its token as a security. Konanykhin noted that the company has publicly filed with the SEC for five years but has been unable to secure formal registration. Despite adhering to public reporting practices, the company has faced multiple SEC investigations.
Gensler’s Tenure and Continued Crypto Oversight
The SEC’s move against Unicoin comes during the final weeks of Gensler’s leadership at the agency. Gensler, who has been criticized within the crypto sector for his rigorous enforcement measures, continues to push for regulatory action despite his imminent departure.
His tenure has been marked by a series of lawsuits and investigations targeting major cryptocurrency companies. In a brief statement to Fortune, the SEC reiterated its standard policy of neither confirming nor denying the existence of ongoing investigations. With a December 24 deadline looming, the outcome of Unicoin’s response may determine the next steps in the case.
When President Joe Biden nominated Gary Gensler as SEC Chair, the crypto industry initially expressed cautious optimism. Gensler, known for teaching blockchain courses at MIT, was expected to bring informed oversight. However, following the collapse of FTX in November 2022, Gensler labeled the crypto sector as a “Wild West” of fraud and scams. His focus turned to enforcing existing securities laws, a move that companies claimed was impractical.
During his term, the SEC filed numerous enforcement actions, targeting leading crypto firms and public figures involved in digital assets. Notably, celebrities like Kim Kardashian faced penalties for promoting cryptocurrency without proper disclosures. Gensler’s aggressive stance triggered a broader industry response, as firms and investors began mobilizing political support to counter his regulatory approach.
Political Shifts, Gensler’s Resignation, and Latest Actions Against Crypto Firms
This coordinated campaign influenced political dynamics, with Donald Trump publicly endorsing cryptocurrency and securing support from industry leaders. Amid this changing landscape, Gensler announced plans to step down as SEC Chair in January. Despite his impending departure, the agency remains active, issuing lawsuits and Wells Notices in recent weeks.
The SEC recently issued a Wells Notice to Unicoin, a crypto investment company, over alleged violations involving unregistered securities and fraud. Unicoin’s CEO, Alex Konanykhin, stated that the company plans to contest the SEC’s claims rather than settle. Similarly, the crypto-based game CyberKongz announced it had received a Wells Notice on Monday.
CyberKongz confirmed the notice publicly via the X platform, stating that the SEC’s enforcement stance raises significant concerns for the web3 gaming industry and blockchain-based digital assets.
https://x.com/CyberKongz/status/1868746903053127941
CyberKongz reported receiving initial contact from the SEC two years ago, leading to a prolonged investigative process. According to CyberKongz, the SEC’s Division of Enforcement claims that blockchain games cannot operate with tokens, such as ERC-20, without registering them as securities. The team emphasized that this interpretation could have broader consequences for web3 gaming projects integrating token systems.
The SEC also raised issues regarding CyberKongz’s Genesis Kongz, part of a contract migration in April 2021. CyberKongz criticized the agency for its inability to differentiate between a primary token sale and a smart contract migration. They noted that such misunderstandings indicate a gap in the SEC’s understanding of blockchain technology.
CyberKongz’s Challenge and Implications for Web3 Projects
Despite having a small team and limited resources, CyberKongz stated that it would challenge the SEC’s claims. The team emphasized their long-term commitment to pushing innovation within the web3 space and defending NFT projects against unclear regulatory frameworks. They also noted that this case could determine critical pathways for the broader blockchain industry.
CyberKongz underscored that the SEC’s approach impacts not only their project but also other NFT and gaming platforms. They referenced other industry leaders, including Coinbase CEO Brian Armstrong and OpenSea’s Devin Finzer, who are also navigating regulatory challenges.
Additionally, the CyberKongz team has received words of support from one of Axie Infinity’s founders, Jihoz Zirlin, who is confident that the new administration will end the persecution in the industry.
https://x.com/Coco__Bear/status/1868771674750947830
CyberKongz described the public disclosure of the Wells Notice as the end of working in silence. They committed to supporting other projects facing similar regulatory issues and expressed optimism for clearer pathways ahead. The team affirmed their intent to continue operations without this ongoing investigation holding them back.
Read the full article here
