If you’re a public company, it’s probably a bad idea to claim the SEC’s explicit approval for your operations.

American Retail Group, aka Simex, Inc., claimed they had partnered with an “SEC qualified custodian” for cryptocurrency transactions “under SEC Regulations,” and that the company was conducting an ICO token offering that was “officially registered in accordance to SEC requirements.”

The SEC warns investors specifically about claimed SEC endorsements in crypto-related offerings. They suspended trading in Simex’s new penny stock offering last month (announcement, order).

Like any good crypto story, there’s a charming history of dysfunction.

Who are Simex?

Simex is a crypto asset exchange, founded in 2015. Their total trading volume is about $60 million a day, which is pretty tiny.



(The Simex exchange should not be confused with the Singapore International Money Exchange, also called SIMEX, which operated from 1984 until 1999, with Simex Technologies in the early 2000s, or with the present-day Polish industrial controller company called Simex.)

On 16 May 2018, Simex did a reverse takeover of American Retail Group, a pink-sheets penny stock that wasn’t on any exchange, but which they’d been closely linked to since at least 2017. But — Simex was a public company now!

How to get the SEC to halt your stock offering

On 28 August, Simex opened sales of a new securities offering — $40 million of convertible preferred shares. In advance of this, Simex issued two press releases that the SEC took exception to:

16 August: SIMEX announces partnership with Prime Trust Company — using Prime Trust as a custodian for their crypto assets. Simex described Prime Trust as supplying “SEC qualified custodian and escrow services,” and said:

The fact that all transactions provided by Prime Trust are under SEC Regulations should give our clients more confidence in making SIMEX the main tool in their work in the cryptocurrency industry

That just means Prime Trust don’t break the rules. Admittedly, that’s probably exceptional in crypto.

22 August: SIMEX (OTC: ARGB) announces the beginning of the public offering — in which Simex offers normal securities … but you can buy them with cryptos!

Simex noted that the offering was “officially registered in accordance to SEC requirements” — which is a basic expectation, even if remarkable in crypto land. The SEC was not pleased with this phrasing.

Simex were selling the new securities for on-exchange “SMX” tokens. These are not part of an ICO — the “SMX” ticker is already being used by the unrelated Smoke Exchange ICO, a marijuana advertising on-the-blockchain scheme — but Simex used the term “ICO” in relation to the token on their website, hence the SEC describing it as one.

The SEC also took exception to repetition of the claim of “SEC qualified custodian and escrow services provided by Prime Trust.”

The offering was halted in its tracks. Simex issued a press release on the suspension, and said they had terminated their relationship with Prime Trust … and that they had not, in fact, even registered this offering with the SEC, as previously claimed:

While it remains a goal of the Company to undertake to register an offering of a security convertible into a cryptocurrency for sale with the Securities and Exchange Commission, it is highly unlikely that the Company would do so in the foreseeable future. Given the inherent risk in cryptocurrencies and the uncertainty surrounding the future of cryptocurrencies, particularly in the United States, it would not be appropriate for the Company to undertake such an offering.

You can still buy SMX tokens — but the offering isn’t running.

A crypto-backed credit card! Any day now

Simex has past form in exploring the precise boundaries of regulation. On 23 May, Simex announced a prepaid Mastercard — which you could top up with cryptos!

There’s quite a bit of demand for such a thing, as large crypto holders look for a way to spend their difficult-to-cash-out bagholding. So where are all the cards?

The problem is that credit card companies have stringent requirements upon those of their card issuing members who aren’t banks, to prevent money laundering and fraud — and crypto users tend to fail these spectacularly.

There were a pile of crypto-backed Visa cards in late 2017 — and, one day in January 2018, they all suddenly stopped working. Visa had found out just how fast and loose WaveCrest, the card issuer, had been playing with Visa’s rules.

Mastercard operates under much the same rules as Visa. Simex claim they’ve “already met all legal formalities and currently making final checks related to technical aspects” — but this is why you won’t have seen these cards in the six months since.

Simex’s website features Visa and Mastercard logos at the bottom. The present-time justification for this appears to be that you can deposit and withdraw money from their exchange this way.

All those post-crash institutional investors! Any day now

On 7 September, Simex announced its platform called OTC. “We created convenient procedure for OTC transactions that allows institutional investors to invest in cryptocurrency.”

Presumably on the basis that if you build it, they will come — which they didn’t, funnily enough.

Summary

Simex are relentlessly creative entrepreneurs who never saw an opportunity they didn’t think was worth following up — and never mind their ability. This is their first serious brush with regulators, but this sort of outside-the-box attitude can only lead to further popcorn opportunities henceforth.