Nasdaq has issued a warning to TON Strategy, one of a slew of new crypto treasury companies trading on the stock exchange, for violating its shareholder approval rules.
TON Strategy, a publicly traded marketing firm that recently changed its name and began purchasing hundreds of millions of dollars worth of the cryptocurrency Toncoin, failed to get shareholder approval for the massive crypto purchase, or for the private sale of stock shares that enabled the buy, Nasdaq warned the company late last week.
Like many public companies that have gone all-in this year on acquiring massive crypto treasuries, TON Strategy (formerly Verb Technology) quickly raised funds for a huge digital asset stockpile via a private investment in public equity, or PIPE. PIPEs allow companies to sell their shares privately to institutional or accredited investors for speedy fundraises.
In August, TON Strategy sold some $558 million worth of its shares via a PIPE, in order to purchase an equivalent amount of Toncoin, a cryptocurrency associated with messaging app Telegram.
But the company failed to receive required shareholder approval for either the PIPE financing or a subsequent purchase of $273 million worth of Toncoin with funds derived from the deal, the Nasdaq said.
Stock exchange officials determined, however, that TON Strategy did not deliberately intend to avoid compliance, and therefore opted only to issue the company a warning, as opposed to delisting the company’s stock.
Nasdaq officials noted its finding that the company believed at the time it was properly navigating the PIPE financing deal based on advice from “outside advisors.”
TON Strategy did not immediately respond to Decrypt’s request for comment on this story.
The incident highlights the blurred lines and rapid shifts in norms that have accompanied Wall Street’s frenzied embrace of crypto this year. All manner of publicly listed companies have shifted their stated missions to buy up billions of dollars worth of crypto this year, in bids to quickly boost stock prices on digital asset-related hype.
While such moves can increase a company’s stock price, such surges tend to be remarkably short-lived. Prior to changing its name to TON Strategy and going all-in on crypto accumulation, for instance, Verb Technology was trading at around $9 in July. After purchasing hundreds of millions of dollars worth of Toncoin in mid-August, the company then saw its stock soar past $22.
That hype quickly faded, though—in part thanks to the last-in, first-out structure of PIPE financing deals. TON Strategy’s stock is currently trading at $4.08, a dip of nearly 82%.