Boston-based Nebulous, makers of the Sia network for decentralized data storage, has settled with the U.S. Securities and Exchange Commission (SEC) over an unregistered securities offering and conversion scheme.

In a blog post Tuesday, the company announced the settlement without admitting fault. It will pay disgorgement of $120,000, prejudgment interest of $24,602 and a civil money penalty of $80,000. At the time of the 2014 token sale, Nebulous raised approximately $120,000.

The Sia settlement comes just a day after the announcement of Block.One’s $24 million settlement with the SEC for the EOS maker’s $4.1 billion securities sale.

As part of the Nebulous settlement, the company will not be required to register the Siacoin utility token as a security. Siacoins are used in the Sia ecosystem to buy and sell cloud storage space and pay revenues to Siafund investors.

The network is used by 323 hosts in 43 different countries to store file contracts representing more than 500 terabytes of data, according to Nebulous’ legal representatives at Cooley LLP.

Nebulous COO Zach Herbert told CoinDesk:

“Though the penalty for our unregistered 2014 Siafunds offering is steep, we are excited that the SEC chose to take no action against Siacoins, and we believe this settlement validates our two-token model.”

The sale

The company’s two-token model was funded by the sale of Siastock in 2014, which the company advertised as supplying “a guaranteed income proportional to the value of storage being rented from the Sia network.”

Two days after this announcement, the company began selling Sianotes that would be convertible to stock upon launch of the Sia network. The offering took place through Bitcointalk.org, three months before the ethereum offering, with approximately 1,250 notes sold at an average price of $96.

According to the SEC, “Sianotes and, as contemplated, Siastock were securities.” The company failed to register the offering and never “took steps” to confirm Sianote buyers were qualified investors.

Nebulous wrote in a statement:

“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.”

The SEC also inquired about the unregistered 2015 conversion of “notes” to “stock.” Ahead of Sia’s platform launch, the company renamed Siastock to Siafunds, which the SEC also claims “were” a security.

The conversion began in April 2015, and by June the company exchanged approximately 1,189 Sianotes, held by approximately 46 investors, for Siafunds. According to the SEC, 61 notes went unaccounted for because Nebulous “did not know who owned them.”

“Upon realizing Siafunds may be securities we conducted a proper Reg D offering in April 2018,” Herbert said. In July, the company raised $3.5 million in a pre–Series A round led by Bain Capital Ventures.

SEC headquarters image via CoinDesk archives