Charges Finally Settled for Two Crypto Startups Involved with the SEC
Initial coin offerings (ICO) are a helpful way for platforms to gather funding on their projects. However, with the regulatory requirements in the industry for the United States, the few regulations outline exactly what they need to do for a token sale. Recently, Airfox and Paragon Coin Inc. gained attention from the U.S. Securities and Exchange Commission (SEC) for their token sales.
Last year, the two firms conducted token sales that were fairly successful. Airfox’s token sale raised $15 million, while Paragon brought in $12 million, based on statements provided. However, trouble arose when the SEC discovered that neither startup classified their ICOs as security offering at the time, and they did not qualify for the exemptions that would keep them from having to register. The SEC commented, “These are the Commission’s first cases imposing civil penalties solely for ICO securities offering registration violations.”
Two ICO issuers settle SEC registration charges, agree to register tokens as securities https://t.co/Rj1UYpd5ON
— SEC_News (@SEC_News) November 16, 2018
Based on an announcement on Friday from the SEC, the two crypto startups are now going to be registering their ICO tokens as securities. Both startups have already agreed to refund the investors that were misled, pay $250,000 each in penalty fees, and submit reports periodically to the SEC.
Stephanie Avakin, the SEC’s Enforcement Division’s co-director, said,
“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.”
The other co-director, Steven Peikin, added to her comments, saying,
“By providing investors who purchased securities in these ICOs with the opportunity to be reimbursed and having the issuers register their tokens with the SEC, these orders provide a model for companies that have issued tokens in ICOs and seek to comply with the federal securities laws.”
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. At the time, and since, the SEC opted to not:
“impose a penalty or include undertakings from Munchee, which stopped its offering before delivering any tokens and promptly returned proceeds to investors.”
However, Munchee ultimately decided to refund the investors, divvying up their $15 million token sale back to the contributors.
This announcement from the SEC comes soon after the entity settled with Zachary Coburn, who is known for his founding of EtherDelta. He was charged with running an unregistered securities exchange. Based on recent actions, an unnamed source believes that the SEC is moving away from examining ICOs and is now turning to token trading platforms in their regulatory actions.