SEC Penalizes ICO Rating Over Undisclosed Token Promotions

The U.S. Securities and Exchange Commission on August 20, 2019, imposed a cease-and-desist order on ICO Rating, a Russia-based cryptocurrency research and rating service, after finding that it publicized digital-asset securities offerings without disclosing compensation received from issuers.

ICO Rating agreed to pay $268,998 and to stop committing or causing future violations of the Securities Act’s anti-touting rules. The settlement mattered beyond its relatively modest dollar value: it applied familiar securities-promotion requirements to a business presenting token ratings and research as independent analysis.

The order was entered through an administrative settlement. ICO Rating consented without admitting or denying the SEC’s findings, apart from admitting the agency’s jurisdiction over the proceeding and its subject matter. That distinction is important: the record establishes the terms of the regulatory action, but it is not a judicial verdict reached after a contested trial.

What the SEC found

The SEC described ICO Rating as the trade name of an unincorporated organization formed in September 2016 and based in the St. Petersburg metropolitan area. From December 2017 through July 2018—the order’s defined relevant period—the service published reports and ratings about initial coin offerings on its website and promoted that material through social-media accounts.

According to the order, ICO Rating charged issuers to rate their projects, produce research reports and publicize the resulting coverage. The SEC found that certain issuers paid the service $100,572 during the relevant period, directly or indirectly, but that ICO Rating did not disclose either the receipt or amount of that compensation.

The agency also identified a U.S. connection. It said a significant share of the website’s traffic came from the United States; the service used a U.S. hosting provider, published in English, displayed figures in U.S. dollars and took no measures to deter U.S. users from viewing its website or social accounts.

The SEC characterized tokens or coins covered in some of the promoted offerings as investment contracts and therefore securities under the Securities Act. It concluded that the undisclosed issuer payments violated Section 17(b), which addresses publicity for securities when the promoter receives consideration from an issuer, underwriter or dealer.

The settlement by the numbers

The total payment comprised $100,572 in disgorgement, $6,426 in prejudgment interest and a $162,000 civil penalty. Those three components add to the announced $268,998 settlement.

Disgorgement corresponded to the consideration the SEC said ICO Rating received. The civil penalty was separate, while prejudgment interest accounted for the time associated with the retained funds. The order established an initial payment followed by installments extending through December 31, 2019, with post-order interest potentially affecting the final installment.

Why the action mattered

The central regulatory message was about economic function rather than branding. Calling material research, analysis or a rating did not remove the disclosure obligation when an issuer paid for publicity involving securities. Likewise, putting the instrument on a blockchain did not alter the SEC’s stated application of the anti-touting rule.

For the digital-asset industry of August 2019, the action expanded the practical compliance perimeter around token offerings. Enforcement attention was not confined to issuers or celebrity endorsers; an intermediary presenting itself as an analytical service could also be treated as a promoter when compensation influenced what it publicized.

The surviving record has meaningful limits. The order did not identify the affected issuers or tokens, determine that every asset reviewed by ICO Rating was a security, find that its ratings were substantively false, quantify investor losses or establish a cryptocurrency-market price reaction. Its verified reach was narrower but still consequential: paid promotion of digital-asset securities required disclosure of both the compensation and its amount.