Enigma ENG

What the record shows

On February 19, 2020 the SEC entered a settled order against Enigma MPC, the company that sold ENG [1] [2]. The order finds that ENG Tokens were securities and that the 2017 token sale was not registered. According to the order, the company sold 75 million tokens to almost 6,000 people for about $45 million [2]. The company consented without admitting or denying the findings [1].

The company’s annual and quarterly reports put the ICO proceeds at approximately $42 million, which the quarterly report calls gross proceeds in one note and net proceeds in another [5] [3]. This page prints the order’s figure, because the order is the adjudicated record. Conflict ledger row 30 records the difference.

The order requires the company to cease and desist from further violations and imposes a $500,000 civil penalty [2]. The company also agreed to register ENG as a class of securities, file reports with the SEC, and run a claims process for buyers [1]. The company is the only respondent the order names [2].

According to the SEC’s order of May 30, 2023, the company filed no periodic report after its quarterly report for the quarter ended May 31, 2021 [3] [4]. The SEC brought a proceeding over the missing reports that followed, and the company did not answer it. On May 30, 2023 the SEC held the company in default and revoked the registration of its securities, effective May 31, 2023 [4]. The company’s annual report names ENG Tokens as its registered class of securities [5].

What the chain shows

ENG is an ERC-20 token on Ethereum. Etherscan lists its contract with 8 decimals and a maximum total supply of 150,000,000 ENG [6]. The token page carries no migration notice.

The company’s filing on the swap below says ENG given up in it was burned and ceased to exist [7]. This page claims no change in supply from those burns. The supply figure above is the one the explorer shows.

Claims and the swap

In the settlement, the company undertook to run a claims process for anyone who bought ENG from it on or before September 11, 2017 [2]. A buyer who still held the tokens could hand them back for the price paid plus interest, less any income received. A buyer who no longer owned the tokens could claim damages instead [5]. The deadline was a formula tied to the company’s registration, not a calendar date [2].

The company’s annual report, dated June 15, 2021, says the deadline had passed and the claims were being processed [5]. Its later quarterly report describes the claims process in the present tense and does not say the deadline passed [3]. This page follows the annual report, because it is the filing that states the deadline’s status. Conflict ledger row 22 records the difference.

The quarterly report carried a provision for claims. It said that if cash fell short, the company intended to pay valid claims in part, pro rata, until it could pay them in full, with interest accruing on the unpaid amounts [3]. According to the SEC’s order of May 30, 2023, the company filed no periodic report after that [4], so this page does not say whether any claim was paid.

The company’s filing on the swap says holders of SCRT, the token of a network the company helped launch, built a Community Swap without its involvement [7]. An ENG holder could burn ENG and receive SCRT. On December 30, 2020 the company itself burned 45 million ENG and received 45 million SCRT [7]. No filing or court finding captured here says when the swap closed, so this page does not say whether it is still open.

Tax treatment

The SEC order does not create a loss. A loss needs a closed transaction. The IRS Chief Counsel memo on crypto that has crashed says a token that still trades on an exchange is not worthless, and a holder who still controls it has not abandoned it [8]. The memo reads a worthlessness loss for an individual as a miscellaneous itemized deduction, and the statute now allows none of those for any tax year after 2017, with no end date [10].

A sale is different. The IRS FAQ says a sale of virtual currency for real currency is a capital gain or loss, reported on Form 8949 and summarized on Schedule D [9]. This site has not checked two questions against a primary source: how a refund from the claims process is taxed, and whether a swap of ENG for SCRT was a taxable exchange.

What a holder can do

The recover-or-write-off table further down lists three routes and what each produces; the first has closed. None of them is a recommendation. Each one produces a different receipt, and the IRS reads the receipt.