Blockchain Startup Hit with Cease-and-Desist Order


Blockchain startup ShipChain, a company offering a 'track and trace' system for contracts on the digitally distributed ledger, has been issued with a cease-and-desist order from South Carolina’s Office of the Attorney General.

The Securities Division's order has stated that ShipChain is in violation of the South Carolina Uniform Securities Act of 2005, which stipulates that it is “unlawful for a person to offer or sell a security in this State unless that security is a federal covered security”.

According to the document, ShipChain issued and offered units of SHIP — its own custom unit of cryptocurrency based on the Etherium platform — to residents of South Carolina, which, according to the act, constitutes as securities.

However, as ShipChain is an unregistered broker-dealer, the division has permanently barred the company from participating in any aspect of the securities industry in the state.

ShipChain released an official statement in regard to the cease-and-desist order on May 24, 2018, stating the division is “misunderstanding” the function of SHIP tokens.

The startup, which wants to create a transparent and encrypted platform for shippers to track goods and cargo, has claimed that they do not believe the tokens should be considered as securities.

Read the “Blockchain Pt II: Powering Port Collaboration” technical paper, authored by Wolfgang Lehmacher of the World Economic Forum

Commenting the Commissioner’s investigation, the ShipChain team said: “…if [the Office of the Attorney General] had ever contacted ShipChain, ShipChain would have shown that its private sale of tokens was conducted in a manner consistent with applicable securities laws requirements.”

ShipChain has argued that all private sales of the SHIP token were carried out in accordance with applicable securities law requirements, which were concluded in January, 2018 — before the company relocated its software development team to South Carolina.

It has also stated that South Carolina citizens did not purchase SHIP tokens in the initial sale, and it was not aware of any SHIP tokens that were offered to any South Carolina resident during the private sale.

Speaking of ShipChain’s CEO, John Monarch, and the wider team, the statement commented: “It is regrettable that they were not given the opportunity to respond before these erroneous accusations were aired.

“Now that they have belatedly been made aware of the South Carolina Securities Commissioner’s questions, they look forward to alleviating his concerns and clearing the record.”

Read more: Leading Supply Chain Solutions Provider Joins BiTA

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