The Securities and Exchange Commission on Tuesday took its first enforcement action against sales of digital tokens since issuing a cautionary notice last year indicating that such sales must follow federal securities laws.

The agency announced in its order that Michigan-based TokenLot LLC and its owners will settle charges amounting to more than $500,000 by allegedly acting as unregistered broker-dealers for selling digital tokens.

Without admitting or denying the SEC’s findings, TokenLot and owners Lenny Kugel and Eli L. Lewitt were charged with violating the registration provisions and have agreed to pay $471,000 in disgorgement plus interest of $7,929, according to the SEC.

The investigation was supervised by the SEC’s cyber unit.

TokenLot, a self-described  “ICO Superstore,” pushed sales of digital tokens during initial coin offerings to retail investors on its website and encouraged secondary trading, the SEC said.

The business only operated from July 2017 through February 2018, but the SEC found that most of its operations happened after the agency issued its so-called DAO Report, the investigative report notifying market participants that digital assets are subject to federal securities laws. The report was issued July 25, 2017.

TokenLot’s activities and those of their owners required registration as broker-dealers, the SEC said.

Both men also agreed to each pay $45,000 in penalties, and agreed to a prohibition on penny stock offerings and any investment company activity, with the option to reapply after three years.

The owners also agreed to hire an independent third party to destroy the remaining inventory of digital assets.

Stephanie Avakian, co-director of the SEC’s Enforcement Division, encouraged “those developing digital asset trading businesses to contact the SEC staff … for assistance in analyzing registration and other securities law requirements.”

The SEC found securities among the more than 200 different digital tokens TokenLot handled from thousands of customer orders.

The business also benefited from trading profits and a percentage of the money that TokenLot raised for ICOs, the SEC charged.

The SEC noted that TokenLot voluntarily began shuttering its operations and refunding payments for unfilled orders.

Steven Peikin, co-director of the Enforcement Division, added in the statement that “TokenLot, Kugel and Lewitt provided valuable information to commission staff, stopped the conduct, and refunded money to investors.”

— Check out FINRA Issues Its First Cryptocurrency Disciplinary Action on ThinkAdvisor.