Blockchain security firm Quantstamp has found itself in hot water as the US Securities and Exchange Commission (SEC) accused the California-based company of conducting an illegal initial coin offering (ICO) in 2017.

The SEC alleges that Quantstamp sold unregistered securities in the form of QSP tokens to nearly 5,000 investors, raising over $28 million during the ICO held between October and November 2017.

In response to the charges, Quantstamp has agreed to settle the case with the SEC, taking steps to rectify the situation and compensate the affected investors.

The SEC released a statement detailing its allegations against Quantstamp, accusing the company of violating federal securities laws by not registering its ICO, despite the QSP tokens being classified as securities under the Howey test.

The SEC filed a criminal complaint against Quantstamp for its actions during the 2017 ICO, marking a significant regulatory intervention in the blockchain and cryptocurrency space.

In an effort to resolve the charges without admitting or denying the SEC’s findings, Quantstamp agreed to a settlement with the regulatory authority.

The terms of the settlement require Quantstamp to pay a total of $2,473,515, which includes a $1,979,201 indemnity, a $494,314 pre-assessment interest, and a $1 million civil penalty.

Additionally, the company will return the remaining QSP tokens to investors who claim them. Furthermore, Quantstamp has committed to registering the QSP tokens as securities under the Securities Exchange Act of 1934.

The SEC’s enforcement action against Quantstamp serves as a cautionary tale for blockchain and cryptocurrency companies that engage in ICOs.