Airfox CEO Victor Santos recently settled with the SEC. The platform is a decentralized system that held a token sale in 2017 which raised $15 million. The SEC investigated the ICO and argued that the platform had violated securities laws by not registering its native “AirTokens” as securities before the sale. Santos settled with the SEC and has been ordered to offer refunds to the platform’s investors. He also must pay a $250,000 fine, he must register with the SEC, and file quarterly annual reports. Some are calling this as the downfall of the ICO process in the United States.
DecryptMedia interviewed with Santos concerning the action and here is an overview of what took place. Those who are interested in reading the full interview can go here.
Order May Not Provide Clarity
Though some are hoping that the SEC action concerning AirFox will allow fore more clarity, Santos is not as confident. He stated, “There is greater clarity for our company, but that may not necessarily translate to all future ICOs in general. We cannot know whether all ICOs will be subject o the same provisions or how the SEC will choose to scrutinize future ICOs.” This rings true, especially in light of the fact that the SEC has not come out with concrete provisions for the entire industry. Rather, it focuses on specific ICOs. As Stephanie Avakian, a co-director of enforcement of the SEC stated, the commission “will continue to be on the lookout for violations for the federal securities laws with respect to digital assets.”
Compliance is More than Trying
Those who are hoping to show good faith compliance with SEC regulations and requirements may have a difficult time. As Santos stated, “When planning the ICO, Airfox did every step possible to comply, acted in good faith, and worked with knowledgeable advisors. We understood that regulations were still developing, and hired experts to help us navigate emerging government regulations.” He added that the platform also focused on strict efforts to comply.
Of course, as is clear now, such efforts were not sufficient. Santos viewed his token as a utility token, which is not the same as a security and it cannot be considered a financial asset either. However, even with such a designation, the token’s fluctuation in price after sale can cause the commission to designate it as a security instead.
Startups Should Try Having A Viable Product Before A Sale
At the end of the interview, Santos provided some advice for those who are interested in their own ICO, but who want to make sure they either comply or are not in the SEC’s purview. He stated, “A legitimate project must have a very clear use case utilizing blockchain’s decentralized approach. It Is critical for ICOs to demonstrate the value of their ideas, technologies, and teams to an audience that wants to support the company’s vision. Before conducting an ICO, startups should first build their technology.”
At the end of the day, the business model should not be entirely reliable on a speculative asset that is volatile. And, have the right team of advisors to provide direction and guidance on the matter.
