This week, the Massachusetts Secretary of State ordered five companies, 18Moons, Across Platforms, Mattervest, Pink Ribbon, and Sparko, to cease and desist from engaging in initial coin offering (“ICO”) campaigns as part of an ongoing government investigation of token sales. The companies allegedly offered and sold unregistered securities in violation of the Massachusetts Uniform Securities Act (Chapter 110A of Massachusetts’ General Laws) and corresponding regulations. The orders, among other things, (1) prohibit the companies from selling unregistered or non-exempt securities in Massachusetts until they are in compliance, including filing a Form U-2 Consent to Service of Process; (2) require the companies to provide the Enforcement Section with written notice of securities offerings prior to making future offers or sales; and (3) mandate rescission of sales to investors that purchased the tokens at issue prior to the order date, pursuant to specified terms. The Enforcement Section may take further actions if the companies fail to comply, including re-instituting investigations.
The announcement of the Massachusetts enforcement actions was announced five days after Arizona announced becoming the first U.S. state to enact a fintech regulatory “sandbox.” The Arizona Governor signed House Bill 2434 into law on March 23, which aims to foster innovation by allowing companies to launch and test innovative products under limited conditions in the Arizona market outside of the scope of potentially burdensome and costly regulatory requirements. The Office of the Arizona Attorney General will administer the sandbox program and will likely begin accepting applications for entry in late 2018, which will require detailed descriptions of the product or service and a to-be-determined fee. Approved participants will have one year to test their product or service on Arizona residents, with the possibility of a year-long extension before July 2028, when the program ends. Other limits include caps on the numbers of individuals who may participate in each agreement, the amount of loans that may be issued, and those related to financial transactions under Arizona law. The sandbox participants also will be subject to the Arizona Consumer Fraud Act. Notably, a reciprocity provision allows the Attorney General to provide sandbox participants the opportunity to participate in similar programs that other jurisdictions may develop in time.