Following charges by the Security Exchange Commission, three Crypto startup companies Airfox, Paragon Coin Inc., and Gladius Network LLC, which collectively raised $40 million from investors during the Initial Coin Offering in 2017 have breached the agreement by not meeting the repayment deadlines. Having taken part in unlawful digital toke sales, the companies incurred fines charged by the SEC.
Both Paragon, which is a blockchain technology firm in the marijuana industry, and Airfox, a mobile banking services provider in developing countries, agreed to each pay $250,000 after settlement with the SEC in December last year. After self-reporting its desecrations, the SEC did not charge Gladius Network any penalties.
For them to be in compliance, the three companies were requested to produce their registration statements. These documents are meant to inform their investors of financial performance, trends, and potential risks and are overseen by the SEC.
However, Paragon failed to reply to a letter from the SEC inquiring about accounting and shareholders' rights. Gladius was supposed to have filed its registration statement by May 20 this year but claims that deadline was pushed to November 18. When contacted by WSJ about the matter, the company's attorney did not comment on it.
Paragon and Airfox were supposed to repay investors by October 16, but Airfox said the deadline was pushed till December 28. According to WSJ, the registration statements reveal that Paragon owes $14.9 million to investors, and the company disclosed that it only has $95,659 in current assets. The company is planning to raise funds by selling its building in Los Angeles. On the other hand, Airfox's filings show that the startup has a current asset of $6.1 million and owes investors $15.4 million.
According to Michael S. Dicke, former settlement lawyer for SEC, such settlements can be termed as being ineffective solutions. “I may look at it as impractical since such a remedy only applies when the companies are in a position to refund,” said Dicke.
This year alone, the SEC has collected over $4.3 billion in penalties, received 31 court orders to freeze assets and suspended 271 users from security trading.