Nebulous, the company building the Sia decentralized cloud storage network, announced today that it has entered into a settlement with the Securities and Exchange Commission (SEC).
Without admitting or denying liability, Nebulous settled an SEC claim relating to the unregistered May 2014 offer and sale of Sianotes and the June 2015 conversion of Sianotes into Siafunds.
Upon completion of its investigation, and as reflected in the settled order, the SEC concluded that because Siafunds were securities, the failure to register the 2014 offering and 2015 conversion constituted violations of Section 5 of the Securities Act of 1933. Without admitting to or denying the SEC’s allegations, Nebulous agreed to a settlement and will pay disgorgement of $120,000, prejudgment interest of $24,601.85, and a civil money penalty of $80,000, for a total of approximately $225,000.
As reflected in the settled order, the SEC did not take any enforcement action with respect to the Siacoin token or any current activity on the Sia network, and the order does not require Nebulous to register the Siacoin token as a security with the SEC.
The Sia network has employed a two-token model since its 2014 whitepaper and 2015 launch; Siacoins are used to buy and sell cloud storage space while Siafund investors receive a small share of total storage revenue. This two-token model creates an ideal ecosystem, focusing Siafund investors and the Nebulous team on product development and long-term network growth. Today, users are storing over 500 terabytes of data on the Sia network.
Token Offering
In May 2014, Nebulous conducted a $120,000 offering of a token called Sianotes, which were converted to Siafunds upon network launch in 2015. The offering took place through Bitcointalk.org, three months before the Ethereum offering. During these earliest stages of development of blockchain technologies, the Nebulous team did not anticipate that the SEC might later deem Sianotes or any other blockchain assets to be securities.
In April 2018, Nebulous conducted a new offering of Siafunds. By then, however, the SEC had issued its 2017 DAO Report and the SEC Chairman and SEC staff’s public statements signaled a shift in regulatory focus that caused Nebulous to understand that the SEC might consider Siafunds to be securities. Armed with this knowledge, Nebulous engaged sophisticated securities counsel and completed a $1.5M Regulation D offering of Siafunds that it called a Tokenized Securities Offering (TSO). The TSO properly complied with all requirements for such an offering.
“Given that Nebulous had properly registered its 2018 offering of Siafunds in the wake of the SEC’s 2017 guidance regarding digital assets, we were disappointed that the SEC chose to take action with respect to the relatively small offering conducted years before we had the benefit of that guidance. However, beyond that, we are pleased at how the company and the network fared under such intense regulatory scrutiny and that after a thorough investigation, the SEC asserted no claims regarding Siacoins or the current operations on the Sia network.”
– Zach Herbert, Nebulous Chief Operating Office
Shortly after the close of the April 2018 offering, Nebulous was contacted by the SEC which had initiated an investigation concerning Nebulous and the Sia network. Over the course of the SEC’s investigation, Nebulous cooperated fully and provided documents and information about the company, its offerings, and the general Sia network (including the role of Siacoins and Siafunds).
“From the earliest days of building Sia, we have always emphasized the importance of ethics and have constantly strived to safeguard user freedoms. As we continue to build the Sia network, we will continue to uphold these values and work towards building a better world that empowers individuals.”
– David Vorick, Nebulous Cofounder and Chief Executive Officer
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