The United States Securities and Exchange Commission (SEC) is taking the hype of blockchain technologies more seriously by standing against companies using misleading names to promote an artificial increase of their stocks value.
This initiative is the result of several irregular situations in which companies with no type of link to blockchain technologies carried out a rebrand to place their new shares in the stock market. The overall reaction was one of a disproportionate increase in prices without any substantial change to support such behavior.
This practice could be considered as fraudulent because -even if not explicitly- the use of ‘Blockchain’ in the name generates a specific image or a natural expectation. A corporate renbranding could imply a hidden intention on the part of the management to produce this type of reaction.
After a series of investigations by the Microcap Fraud Task Force and the Financial Industry Regulatory Authority (FINRA), the first actions were decisive.
The investigation was based primarily on investor fraud by UBI Blockchain Internet, LTD, a company that, despite having the word ‘blockchain’ on its name, is engaged in the sale of maternity clothing, cosmetics, children’s clothing and household goods.
In an official press release, as a result of the investigation, the SEC determined that they used the word ‘blockchain’ as a strategy to commit fraud through an illegal sale of shares at unauthorized prices:
The SEC’s complaint alleges that Jesky, and DeStefano, both residents of Nevada, received 72,000 restricted shares of UBI Blockchain stock in October 2017 and were permitted to sell the shares at a fixed price of $3.70 per share under the registration statement. Instead, the complaint alleges that Jesky and DeStefano unlawfully sold the shares at much higher market prices – ranging from $21.12 to $48.40 – when UBI Blockchain’s stock experienced an unusual price spike.”
The SEC had previously ordered the suspension of UBI Blockchain securities trading due to the misleading information under which they operated
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
The “Bubble” Debate
This practice is one of the arguments put forward by bearish analysts and skeptics who believe that cryptos and blockchain technologies are in a bubble. The “bubble” is a phenomenon in which the prices of something are artificially inflated without any support, eventually falling to their real value (a bubble pop).
Long Island Iced Tea
The most recent common case cited by experts is from a company called New York’s Long Island Iced Tea. After changing its name to Long Blockchain Corp., its shares increased by up to 200%. On May 25, 2018, The Nasdaq Stock Market Exchange decided to delist the company
Another clear example of this practice is On-line Plc, a company that after changing its name to On-line Blockchain Plc managed to increase its shares by up to 394% in a 24-hour period.