Blockchain startup ShipChain has been hit with a cease-and-desist order from the South Carolina Attorney General's Office, which claimed the company violated the state's securities statutes.
The state's Securities Commissioner said in an order issued Monday that ShipChain offered what amounts to an investment contract by way of its token, which is "the only medium of exchange on the platform."
The order stated:
"At all times relevant to this Order, Respondent ShipChain continuously offered investment opportunities in the ShipChain platform and the corresponding tokens to South Carolina residents through its website and in-person events held in South Carolina. At no time relevant to the events stated herein was Respondent ShipChain registered with the Division as a broker-dealer, and no exemption from registration has been claimed by Respondent ShipChain."
ShipChain bills itself as an ethereum-based platform for tracking the shipment of goods. It's also a member of the Blockchain in Transport Alliance, which counts major firms such as FedEx and JD.com among its ranks.
The order – if finalized – would bar ShipChain from "transacting business" and "from participating in any aspect of the securities industry in or from the State of South Carolina." The startup has 30 days to request a hearing on the matter, where it may argue that its token sales do not qualify as an unregistered securities offering.
A request for comment was not immediately returned by ShipChain. However, the startup acknowledged the order on Twitter and said it was working on a formal response.
We are aware of the letter that was sent to us by the Attorney General of South Carolina. Rest assured that our lawyers are working on responding as fast as they can. We will keep you updated as soon as we have more information.
— ShipChain (@ShipChain) May 22, 2018
ShipChain's publicly traded token saw a steep drop in value on Tuesday, and as of press time is trading at $0.065 – down 39 percent compared to yesterday – according to data from CoinMarketCap.
Shipyard image via Shutterstock