US regulator plays hardball over ICO securities

Like some stocky wiseguy in New Jersey, the US Securities and Exchange Commission (SEC) just ain’t got time for any nonsense about initial coin offering (ICO) securities.

Neither Airfox nor Paragon registered their ICOs pursuant to the federal securities laws

The SEC has settled charges against two companies that sold digital tokens in ICOs. These are the commission’s first cases imposing civil penalties solely for ICO securities offering registration violations. Both companies have agreed to return funds to harmed investors, register the tokens as securities, file periodic reports with the commission, and pay penalties.

According to the SEC’s orders, both CarrierEQ (Airfox) and Paragon Coin conducted ICOs in 2017 after the SEC warned that ICOs can be securities offerings in its DAO Report of Investigation.

Airfox, a Boston-based start-up, raised approximately $15 million worth of digital assets to finance its development of a token-denominated “ecosystem” starting with a mobile application that would allow users in emerging markets to earn tokens and exchange them for data by interacting with advertisements.

As FinTech Futures reported in February, Airfox unveiled its free Android app in Brazil as it targets the nation’s unbanked market.

Paragon, an online entity, raised approximately $12 million worth of digital assets to develop and implement its business plan to add blockchain technology to the cannabis industry and work toward legalisation of cannabis.

Not something we cover but it sounds interesting.

Neither Airfox nor Paragon registered their ICOs pursuant to the federal securities laws, nor did they qualify for an exemption to the registration requirements.

“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,” says Stephanie Avakian, co-director of the SEC’s Enforcement Division. “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 cases follow the commission’s first non-fraud ICO registration case, Munchee. The SEC did not impose a penalty or include undertakings from Munchee, which stopped its offering before delivering any tokens and promptly returned proceeds to investors.

The orders impose $250,000 penalties against each company and include undertakings to compensate harmed investors who purchased tokens in the illegal offerings. The companies also will register their tokens as securities pursuant to the Securities Exchange Act of 1934 and file periodic reports with the commission for at least one year. Airfox and Paragon consented to the orders without admitting or denying the findings.

You talking to me?

As you’d expect, the SEC stays tough on fintech.

Last month, it revealed a civil lawsuit against Michael Gastauer, accusing him of aiding and abetting the fraudulent sale of $165 million worth of shares in microcap stocks. Gastauer denies having ever been accused of fraud. The PDF/link to the SEC case is in the story.

Back in July, the SEC created a fake website to warn people about the dangers of ICOs.