Two cryptocurrency firms have recently settled charges filed by the U.S. Securities and Exchange Commission (SEC) over alleged violations of registration rules governing ICO securities offering.
As detailed on the SEC’s Investigative Report on DAO tokens published in July 2017, a number of crypto fundraising initiatives can be deemed as securities offerings. At the time, both Carrier EQ (Airfox) and Paragon Coin had launched Initial Coin Offerings (ICOs) following the regulator’s official stance on ICOs.
The settlement, as the SEC outlined, would require both crypto firms to reimburse the funds raised from investors, register its token offerings as securities, submit periodic reports to the regulator, and settle a penalty of $250,000.
While both crypto companies have conceded to the SEC’s order, neither one has admitted nor denied the regulator’s allegations.
In October 2017, Carrier EQ (Airfox), a Boston-based blockchain company that offers transfer of data and currency, payments for goods and services, as well mobile airtime, had generated over $15 million from selling more than one million AirTokens, prompting the company to conclude its $6.5 million ICO pre-sale earlier than the slated schedule. As the firm intended, the funds raised were to be invested in the development of its micro-loans program and overseas expansion, as the company enters emerging markets.
Paragon, a blockchain platform focused on the cannabis industry, had raised over $12 million worth of cryptocurrency for the implementation of the firm’s business plan as well as the promotion of the cannabis industry’s legalization.
As originally planned, the funds would be invested to boost the efficiency and manageability of supply chains, improve the transparency of tracking the origin of seeds and produces, and enable payments between parties.
The recently settled charges mark the SEC’s first cases enforcing civil sanctions stemming from registration violations of ICO securities offering. As deemed by the regulator, not only did Paragon Coin and Airfox failed to register their ICO in pursuant to federal securities laws, but they also failed to qualify for an exemption to the outlined registration requirements.
As the SEC’s Enforcement Division co-director Stephanie Avakian stated in press release published November 16:
“We have made it clear that companies that issue securities through ICOs are required to comply with existing statutes and rules governing the registration of securities. These cases tell those who are considering taking similar actions that we continue to be on the lookout for violations of the federal securities laws with respect to digital assets.”
Prior to the charges filed against Airfox and Paragon Coin, the SEC has also handled its first non-fraud ICO registration case on Munchee, the visual review and social networking app for food. As the SEC deemed, while the company failed to register with the regulator, it did terminate its token offerings and promptly reimbursed the collected proceeds to investors.
The crowdfunding initiative was initially launched to raise $15 million for the development of an iPhone app for reviewing restaurant meals.