Crypto Asset Tokenizers Continue Attempting to Evade the SEC, While Some Deny They Ever Existed At All


The concept of initial coin offerings (ICO) first reached its height in 2017, and every potential project was launching ICOs. In the recent changes of the market, there are many issuers seeking to stay out of the sights of the US Securities and Exchange Commission (SEC) and others. Recent research has revealed that less than half of all ICO projects even manage to survive more than a few months after a token sale. As a result, many regulators to become stricter and more concerned about how they are handled, considering the scams.

In 2017, an ICO for TokenPay was launched, hoping to sell 25 million Tpay tokens in an effort to raise $41 million. However, the story is much different now, as the company states that they have never held an ICO and said that they “bartered” the Tpay tokens for BTC. Furthermore, the company said that there is no place that anyone will find evidence of an ICO, adding that all content that can be found online will say “that the coin has no value.”

Even though there were many people that pointed out the ridiculousness of their statements, TokenPay did not back down. They continued to say that this “barter” was not available to US citizens, which excluded the SEC from accessing it, or so they believed. Still, US attorney Stephen D. Palley quickly manage to show how wrong that company was by developing a US-based account right away.

Realistically, in the end, it does not matter what name is put on the ICO from TokenPay. The fact is that the Howey Test from the Securities and Exchange Commission will decide the label that the TokenPay system will go through. This test is considered the legal standard that decides if the activity is considered an investment contract.

At this point, regulators everywhere have serious worries about ICOs, especially with how quickly scammers have adopted this type of fundraising option. The jurisdictions with the greatest risks are the ones that lack much regulation of the cryptocurrency industry in that area. With this “weakness,” the false companies can easily take advantage of retail investors.

Over half of ICO projects meet their demise within just four months of finalizing their token sale. However, that “death” often brings the money of investors along with it, most of which will never been seen again by those who contributed it. In response, the SEC has been working to improve the overall regulatory environment and to increase transparency of the market. Two years ago, when cryptocurrency was seeing a major bull run, the SEC said that the majority of ICOs should be considered securities offerings, which would mean that they are governed by the SEC in the same way that stocks and bonds are. Furthermore, it means that ICOs have to register and provide multiple disclosures.

Ever since this implementation, the SEC has taken action against two companies, assigning fines to both Carriereq Inc. (Airfox) and Paragon Inc. Two years ago, the companies raised $15 million and $12 million (respectively) as a result of token sales. These actions cost them each $250,000.

One of the most interesting cases has to do with a 39-year old entrepreneur known as Maksim Zaslavskiy. Zaslavskiy ultimately pled guilty to fraud involving securities as a result of running Recoin and Diamond Reserve Coin. At the time, the platforms offered the opportunity to get involved in real estate investments in other countries, or that they would have the option to get involved in a tokenized membership involving physical diamonds to back the coins.

A total of 1,000 investors were scammed for $300,000 with the two separate ventures, but there was never a token or even infrastructure created after the sale. Basically, as one US district attorney stated, the investors that got involved with these two programs purchased “worthless certificates.” As a jury panel is working to determine what will happen to Zaslavskiy now, there’s a chance of him facing about five years in prison for his actions.

Much of the reasoning behind this monitoring is to provide an opportunity for scammed investors to get back some of their lost funds, if fraud occurs or if registration isn’t confirmed. However, the main goal is that scams will not keep happening, but the issuers in the market all tend to work to keep ahead of the SEC to keep their scams going, forcing the SEC to work even harder to keep up.

As the regulatory work catches up, ICOs ended up evolving as well, with one option being the security token offering (STO). This security offering is fairly similar to ICOs, giving some rights to a company for anyone that invests. However, when it comes to the SEC, the requirements for STOs are fairly similar to that of initial public offerings (IPOs). By taking this path instead, cryptocurrency companies show their willingness to get on board with regulatory restrictions, while still raising the capital that they need.

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