Traditional businesses are picking up on the hype surrounding blockchain, this trend was made evident by the rush of publicly-traded companies which changed their market scope, name, or other facets of business to include blockchain. Accompanying their pivots, businesses have regularly seen significant stock value increases.
Anytime stocks jump rapidly in price, it sends off warning flags to regulators that something may be amazing, or perhaps wrong. If stocks climb or fall by too wide a margin, then the exchanges they are listed on will freeze trading for a brief window.
In similar fashion, when the SEC deems a security to have failed to comply with their regulations, they will prevent any traders from engaging in trades for the stocks. Disregarding this can result in serious penalties for the trader, the issuer, and the buyer/seller.
UBI Blockchain Internet Ltd. was subjected to the SEC freeze on January 5th, 2018. The notice from the SEC came with the following description:
The Commission temporarily suspended trading in the securities of UBIA because of (i) questions regarding the accuracy of assertions, since at least September 2017, by UBIA in filings with the Commission regarding the company’s business operations; and (ii) concerns about recent, unusual and unexplained market activity in the company’s Class A common stock since at least November 2017.
How can trading be resumed?
Rule 15c2-11 from The Securities Act of 1934 essentially prohibits brokers, dealers, and any private traders from selling or buying any share of stock which have been frozen. In order to resume trading, the company which issued the securities must become compliant with the SEC regulations and then verify their compliance with the SEC.
What are the penalties for trading before the issue has been resolved?
Penalties in the realm of these offenses can range anywhere from $500 to more than $2,000,000. When seeking investment opportunities, the SEC and FINRA strongly recommend that investors do their due diligence and familiarize themselves with related rules.
There may be other applicable penalties, depending on the types and number of violations incurred by the issuer.
How can other businesses prevent being frozen similarly?
In order to prevent this issue, businesses and projects seeking to break into blockchain should take the utmost care to maintain regular and clear communication with the SEC, CFTC, or any other regulator which may be involved in controlling the trade of their stock.
While blockchain regulations are not yet concrete, it is becoming increasingly apparent that regulators do not want traditional companies to use the blockchain hype wave to increase the value of their shares. Regulators seem more than willing to punish companies which fall into this trap.