SEC Settled Quantstamp ICO Charges for $3.47 Million

The Securities and Exchange Commission instituted and simultaneously settled an administrative proceeding against blockchain-security company Quantstamp on July 21, 2023, finding that its 2017 offer and sale of QSP tokens violated federal securities-registration provisions.

Quantstamp consented to a cease-and-desist order and a total payment of $3,473,515 without admitting or denying the Commission’s findings, except for admitting the SEC’s jurisdiction and the proceeding’s subject matter. The settlement also created a Fair Fund intended to distribute collected money to harmed investors where feasible.

The action mattered because it applied the SEC’s investment-contract analysis to a token created for a proposed smart-contract auditing protocol, while separating that protocol from the manual security-consulting business Quantstamp later operated.

What the order found

According to the SEC, Quantstamp raised approximately $28.35 million in ether and U.S. dollars from more than 5,000 investors between October and November 2017. The order identifies approximately 87,000 ETH as having been raised and values it together with dollar proceeds at the time of the sales—not at ether’s price on July 21, 2023.

Quantstamp’s offering materials described an Ethereum-based protocol through which smart-contract developers could request automated security audits. QSP tokens were intended to compensate validators, contributors and people who identified software vulnerabilities. The SEC found that the protocol was undeveloped and QSP had no functional use when the offering occurred.

The Commission also found that Quantstamp emphasized the prospective market for smart-contract audits, promoted its team’s ability to build the product and encouraged purchasers to expect that QSP’s value would rise with the enterprise’s success. Quantstamp priced QSP at approximately five cents during the offering, although some promotional contributors received discounts of as much as 50%.

The company filed a Form D on December 1, 2017, claiming exemptions under Rule 506(c) of Regulation D and Regulation S. The order found that Quantstamp did not satisfy those exemptions, including because it had not taken reasonable steps to verify every relevant purchaser’s accredited status and had made selling efforts into the United States.

The settlement and its limits

The monetary order comprised $1,979,201 in disgorgement, $494,314 in prejudgment interest and a $1 million civil penalty. Those components total $3,473,515. They should not be confused with the approximately $28.35 million raised in 2017. The SEC said disgorgement did not exceed Quantstamp’s net profits, while separately finding that the company used more than $26 million of offering proceeds to develop the protocol.

Quantstamp also agreed to transfer every QSP token remaining in its possession or control to the Fair Fund administrator for permanent destruction or disabling. It undertook to publish notice of the order and convey it to crypto trading platforms offering QSP.

The order found that Quantstamp released an initial protocol version in March 2018, an upgrade in September 2018 and a final version in June 2019. It said the company stopped developing or substantially supporting that protocol after June 2019. Quantstamp’s separate manual-audit consulting business did not accept QSP and had not done so since at least 2018, according to the order.

What the action did not decide

This was a settled administrative order, not a trial judgment following contested evidence. Its findings arose from Quantstamp’s settlement offer and were expressly not binding on other people or entities. The order addressed the facts and circumstances of the QSP offering; it did not establish that every crypto token, security-audit service or secondary-market transaction had the same legal status.

No attributable dataset reviewed for this reconstruction establishes a defensible QSP, bitcoin or ether market reaction during a defined July 21 window. Coinburn therefore makes no price, return or market-causation claim.

Later context

On November 26, 2024, the SEC approved a distribution plan covering eligible QSP purchases from October 1, 2017 through July 20, 2023. That later record confirms that the $3,473,515 had been collected, but it does not alter what the July 21, 2023 order established.