The U.S. Securities and Exchange Commission (SEC) settled charges with crypto exchange Bitqyck and its founders, alleging that they committed fraud with two different token sales.

According to a press release Thursday, Bitqyck founders Bruce Bise and Sam Mendez raised $13 million by selling Bitqy and BitqyM tokens to more than 13,000 investors in “unregistered securities offerings.” The SEC alleged that the defendants told investors that Bitqy tokens would provide fractional shares of Bitqyck stock through a smart contract, while BitqyM tokens would provide investors interest in a crypto mining facility.

The SEC also alleged that the defendants “misrepresented QyckDeals, a daily deals platform using Bitqy, as a global online marketplace,” and the defendants didn’t actually own any mining facilities.

On top of these charges, the SEC also alleged that the defendants operated an unregistered exchange, TradeBQ, to allow investors to trade Bitqy.

“Investors allegedly received $4.5 million for referring new investors to Bitqyck but collectively lost more than two-thirds of their investment in the Dallas-based company,” the press release stated.

In a statement, SEC Forth Worth Regional Office Director David Peavler said “digital investment assets” can be appealing, particularly to investors who believe they are receiving partial ownership through their tokens. He added:

“We allege that the defendants took advantage of investors’ appetite for these investments and fraudulently raised millions of dollars by lying about their business.”

The SEC filed for permanent injunctions, civil monetary penalties and the return of all gains with interest, which the defendants agreed to. Bitqyck will pay a civil penalty of $8.5 million on top of disgorgement and prejudgement interest; Bise will pay $890,254; and Mendez will pay $850,022.

The Texas State Securities Board and the State of Hawaii Office of the Securities Commissioner assisted the SEC’s Forth Worth office in investigating the defendants.

The SEC has settled charges with nearly 40 crypto startups which have conducted token sales over the past few years, according to an SEC database.

The agency is currently suing messaging platform Kik on charges that its $100 million kin token sale in 2017 was an unregistered securities offering.

SEC image via Shutterstock