The US Securities and Exchange Commission fined crypto exchange Coinme approximately $4 million for allegedly marketing unregistered securities and making “misleading statements” about its crypto token UpToken (UP).

The Securities and Exchange Commission (SEC) announced on April 28 that it had resolved charges against Coinme, its subsidiary Up Global SEZC, and both companies’ CEO, Neil Bergquist.

Up Global agreed to pay a $3.52 million fine, which Coinme was also responsible for. Separate penalties of $250,000 and $150,000 were also imposed on Coinme and Bergquist, which both agreed to pay.

The SEC claimed in its ruling that Coinme, Up Global, and Bergquist’s Initial Coin Offering (ICO) of UP from October to December 2017 constituted an investment contract under the Howey test and so unregistered securities offerings.

The ICO collected around $3.6 million to increase the number of Bitcoin $28,642 ATMs in Coinme’s fleet, which it added 30 ATMs using ICO funds. When using ATMs, UP holders received benefits such as reduced fees and a 1% cashback paid in UP.

Coinme modified its product in January 2019, partnering with Coinstar to utilize its cash-counting kiosks rather than its own ATMs to handle cash-to-crypto conversions. Coinme has shut down all of its own ATMs by July 2019.

“UpToken has no current use, and UpToken holders can no longer use UpToken to obtain the benefits described in the UpToken offering materials.” Since then, the price of UP has dropped significantly, with its market worth plummeting to roughly $50,000 and 24-hour trading volumes reaching $180.

According to the SEC, Bergquist and Up Global allegedly made “false and misleading statements” concerning the demand for UpToken and the amount raised in the offering.

The SEC stated that “Bergquist and Up Global took steps before and throughout the ICO to obtain an UpToken supply that would substantially reduce Coinme’s need to purchase UpToken after the ICO for the ATM rewards program.”

According to the SEC, Coinme transmitted 160 BTC worth more than $1 million at the time to an Up Global wallet used to handle ICO investor payments. Up Global returned about 14.5 million UP to Coinme at a discount, and the transaction “knowingly or recklessly” gave the appearance that a third party made a big purchase.

In another case, Bergquist allegedly arranged a 500 Bitcoin round-trip trade of UP tokens with an undisclosed Hong Kong corporation, with Coinme borrowing the cash to acquire further UP at a discount. The transaction was also utilized to give the appearance that the tokens were in high demand.

Bergquist, who did not confirm or reject the SEC’s findings, consented to settle the allegations and was restricted from operating as an officer of a public business for three years, according to the SEC.