The blockchain and logistics startup ShipChain received a cease-and-desist order from the South Carolina Office of the Attorney General, Securities Division. The order was signed on May 21 by Assistant Attorney General Taylor Faw, who requested its issue and is working under the authority of Alan Wilson, the state’s Attorney General and Securities Commissioner.
ShipChain promised a fully integrated end-to-end logistics platform that offers realtime visibility into shipments federated in “trustless, transparent blockchain contracts” powered by SHIP cryptocurrency tokens.
The cease-and-desist order relates to ShipChain’s failure to register as a security broker in South Carolina and its issuance of SHIP tokens. ShipChain had planned an initial coin offering (ICO), but sold out its $30M offering of SHIP tokens by January 6, 2018, when the pre-sale to accredited investors ended. While ShipChain is a Delaware-based corporation, CEO John Monarch graduated from Clemson University, founded previous logistics businesses in South Carolina, and allegedly pitched SHIP as an investment opportunity to South Carolina residents at events in the state.
ShipChain responded to the order in an official statement: “The order refers to ShipChain’s issuance of its “SHIP” tokens. SHIPs are blockchain tokens that are one means of enabling transactions on ShipChain’s award-winning, innovative logistics platform. ShipChain does not believe that the tokens are securities.”
There have been inklings that all was not as it seemed at ShipChain. Reddit users YoungGentilhomme and waynekenoff1234 said they were banned from ShipChain’s Telegram for asking questions about the company’s revenue model. The ShipChain subreddit appears to be moderated in a somewhat heavy-handed fashion: redditors who asked questions about the company’s elaborate, intrusive know-your-customer requirements—which, as they pointed out, could be monetized by the company’s team of former online marketers—were berated and systematically downvoted.
In a statement to FreightWaves, Shipchain wrote, "ShipChain strongly believes in protecting the privacy of its contributors and has never—and will never—sell or monetize user information. ShipChain requests extensive information about contributors in order to verify their identities and meet the most stringent security standards."
Even as /r/ShipChain mods, including shipchain_sam (Sami Rusani, the Chief Revenue Officer, an LA-based talent manager), sought to carefully control any critical conversations about the ShipChain project, the company tolerated misinformation on its subreddit, as long as it was favorable. Pro-ShipChain accounts made comments claiming that a multi-million dollar South Carolina defamation suit against ShipChain CEO John Monarch was already settled, but the case’s docket, searchable on the Greeneville County Court’s website, is still open. The last filing was on May 18th. FreightWaves spoke by phone to Richard Gorman, the plaintiff in the case, who says he expects to go to trial this summer.
The defamation suit against Monarch stems from allegations that he and a former business partner launched a systematic internet whisper campaign against their competitor in the online marketing space, Richard Gorman, which included directing Gorman’s customers to pseudonymous internet posts accusing Gorman of sex crimes against minors. The case has been pending for years. Gorman's suit alleges that Monarch demanded Gorman pay him $500,000 worth of bitcoin to remove the material; after a court entered a $3.1M judgment against Monarch’s co-defendant Karl Steinborn, Steinborn committed suicide in a Las Vegas hotel.
Monarch’s other less-than-admirable business practices include a South Carolina ‘logistics company’ called Direct Outbound that participated in shady ‘free trial’ marketing and shipped samples of skin creams to women, charging their credit cards hundreds of dollars in some cases if the samples weren’t promptly returned. Monarch also built up a for-hire chargeback dispute business in order to tie up his customers’ numerous refund requests.
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