The US Securities and Exchange Commission settled charges on Friday with two technology companies for improperly offering digital tokens, mandating that they register their offerings as securities and reimburse investors.
(Airfox) and Paragon Coin Inc. conducted ICOs in 2017 after the Commission warned that ICOs can be securities offerings in its DAO Report of Investigation. In turn, Paragon is yet another blockchain outfit which raised over $12 million in an ICO to build a "social network of cannabis startups", but reportedly lost 90 percent of its market cap. The SEC statement wrote that Paragon did not register its ICO pursuant to the federal securities laws, nor did it qualify for an exemption to the registration requirements.
As the Commission's statement claims, this is the first time when American regulator applies civil liability measures because the ICO project infringe securities act because it was not properly registered. "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", Stephanie Avakian, Co-Director of the SEC's Enforcement Division, said. Via this ICO, it managed to raise "approximately $15 million in capital for the objective of creating and capitalizing a new, worldwide business and ecosystem".
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Steven Peikin, Co-Director of the SEC's Enforcement Division, stated that the SEC's orders, in which the two companies have to refund their investors and register their tokens with the federal agency, provides "a model for companies that have issued tokens in ICOs and seek to comply with the federal securities laws".
Nevertheless, the bill would complement the recent tendency of crypto and blockchain firms to turn to venture capital (VC) funding rather than ICOs, in a bid to circumvent the complexities of securities laws and the increasingly stringent oversight of the SEC.
The SEC noted that these cases come after the first case that they have seen of a non-fraud ICO registration concern with Munchee, Inc.
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Investors who invested in two cryptocurrency startups past year could be eligible for refunds following a settlement with the US Securities and Exchange Commission. Both companies are now required to offer to compensate investors who still hold the tokens or who sold them at a loss.
In the U.S. at least, tokens and ICOs have two choices: either completely block out investors from the United States participating in ICOs or cooperate with the SEC to distribute tokens as a registered security.
Both Paragon and Airfox submitted to the orders without an admission of guilt. The AirFox probe was conducted by the Boston Regional Office.
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