Nebulous Inc., a Massachusetts-based blockchain business, has entered into a settlement agreement with the Securities and Exchanges Commission and will pay roughly $225,000 due to the unregistered offering of Sianotes in 2014 and their subsequent conversion into Siafunds in 2015.
Sia, one of the projects from Nebulous, is a decentralized cloud storage network that works under a two-token model. Siacoins are used to buy and sell cloud storage space, and Siafunds (previously known as Sianotes), allow investors to receive a portion of total storage revenue.
According to the SEC filing, Nebulous conducted an unregistered offering of Sianotes in May 2014, amassing $120,000. Upon the launch of the network in 2015, Sianotes were converted into Siafund tokens. In April 2018, Nebulous conducted another offering of Siafunds, but regulatory shifts led them to seek securities counsel, and they ended up conducting a Tokenized Securities Offering (TSO). According to the official statement from Sia, the Nebulous team did not anticipate that the 2014 offering of Sianotes would be deemed as securities by the SEC in the future.
Shortly after the TSO, which was fully compliant with the SEC, the Commission started an investigation into Nebulous. After the investigation, the SEC concluded that Siafunds were considered securities, and that the 2014 offering constituted a violation of Section 5 of the Securities Act of 1933. Nebulous, without denying or admitting to the allegations, agreed to settle, and will pay roughly $225,000 in disgorgement and penalties.
Notably, the SEC did not take any enforcement action regarding the Siacoin token or any other ongoing activity on the network. Nebulous COO Zach Herbert was quoted as saying “while disappointed that the SEC chose to pursue a steep penalty of almost double what we raised in our 2014 offering of Siafunds, especially compared to their lax handling of EOS, we view this settlement as highly positive for Sia. By choosing not to take action against Siacoins, we believe the SEC has validated Sia’s two-token model. We will continue to build and improve the Sia network at a rapid pace.”