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Logistics provider ShipChain, which built on blockchain, shutting down after big payment to SEC

Company said sale of its SHIP tokens was not an unregistered securities sale, but government agency disagreed

Image: Jim Allen/FreightWaves

ShipChain, the blockchain-based logistics startup that launched the SHIP token to facilitate transactions on its platform, is shutting its doors.

In a recent announcement, the company said as a result of a more than $2 million payment to the Securities & Exchange Commission, ShipChain “is now without sufficient resources to continue its business. Consequently, ShipChain Inc. has made the difficult decision to cease operations and is now in the process of closing its affairs.”

In the announcement, ShipChain said it had been cooperating with the SEC over the status of the SHIP token. The initial coin offering (ICO) that put SHIP tokens into circulation in late 2017 was actually a sale of securities that had not registered with the SEC. That inquiry, ShipChain said in its statement, concluded that the sale of the tokens did require registration. 

To settle the charges, ShipChain will pay $2.05 million to the SEC. The money will be used to create a Fair Fund, a creation administered by the SEC and authored under the Sarbanes-Oxley Act of 2020, that disburses payments to people who have a claim against the unregistered sale of the SHIP tokens.

According to the settlement document, ShipChain raised $27.6 million in its ICO, selling more than 145 million tokens. 

Based on what ShipChain management was telling buyers of the tokens, “SHIP tokens were offered and sold as investment contracts, and therefore securities,” the settlement document said, citing other legal precedents that established what constituted an unregistered sale of securities. “A purchaser in the offering of SHIP tokens would have had a reasonable expectation of obtaining a future profit based on ShipChain’s representations and efforts to build its business.”

ShipChain’s plans were to build a shipping and logistics platform on the back of Ethereum blockchain technology, which is the preferred blockchain technology for such applications. The far better known bitcoin platform is a digital currency, with sales of bitcoin powered by blockchain. But its platform is not seen as adequate to host actual applications, unlike Ethereum.

“ShipChain publicized the potential impact of its platform on the transportation and logistics industry and the necessity of SHIP token ownership to participate in any capacity on the platform,” the settlement document said.

The plan that investors were told is that the funds from the ICO would be used to build the platform. As the settlement document notes, the platform was not up and running at the time of the ICO.

The ShipChain platform had made some progress. This past summer, it introduced its Mainnet, which is a blockchain protocol that would allow users to transact on a less-congested platform than Ethereum. “A big part of the Mainnet launch is the ability for others to develop on top of the platform,” the company said in a blog post at the time of the release. “Other developers are welcome and encouraged to build on top of ShipChain, further enhancing its utility for end users.”

ShipChain was founded by John Monarch. Its history was always rocky; in the summer of 2018, South Carolina, where the company was based, had issued a cease-and-desist order over the same issue that ultimately brought the company down by the SEC: the allegation that the sale of the SHIP token was an unlicensed security sale. 

Some of the work it has accomplished can be built on, the company said in announcing its closure. “The substantial work that we have done … is open-source and so can, we expect, help accelerate that innovation pathway,” it said.

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  1. Robert Avila

    I find it odd that all the bitcoin excitement and other alternative block chain schemes all revolve around good old fashioned uncle sams currency whether buying in or cashing out. Like a ponzi scheme some one will be holding the bag of crap at the end.

  2. David

    So they raised $27m, the music stopped, and then they get fined just $2m????

    Seems like they should do it again (and again and again and again)

    Where is the justice here exactly?

Comments are closed.

John Kingston

John has an almost 40-year career covering commodities, most of the time at S&P Global Platts. He created the Dated Brent benchmark, now the world’s most important crude oil marker. He was Director of Oil, Director of News, the editor in chief of Platts Oilgram News and the “talking head” for Platts on numerous media outlets, including CNBC, Fox Business and Canada’s BNN. He covered metals before joining Platts and then spent a year running Platts’ metals business as well. He was awarded the International Association of Energy Economics Award for Excellence in Written Journalism in 2015. In 2010, he won two Corporate Achievement Awards from McGraw-Hill, an extremely rare accomplishment, one for steering coverage of the BP Deepwater Horizon disaster and the other for the launch of a public affairs television show, Platts Energy Week.