SEC Settles with Operators of Two ICOs, Draw Sanctions and Registration

Marco Green
November 19, 2018

On November 16th, the SEC declared a settlement of charges against CarrierEQ Inc. and Paragon Coin Inc., respective operators of the Airfox and Paragon Coin ICOs, for failing to register their tokens with the Commission as securities.

Given that Paragon, for example, sold $12 million in tokens but PRG has a sum market capitalization of not quite $3,000,000, it would seem there will be people interested in pursuing as much.

"As I said when my office first began its sweep of ICOs a year ago, there is little question that many of these ICOs constitute securities offerings which need to be registered or exempt from registration in the Commonwealth", Massachusetts Secretary of State William F. Galvin said in a statement.

What is significant about today's announcement is that these are "the Commission's first cases imposing civil penalties exclusively for ICO securities offering registration violations".

SEC's representative claimed that the regulator made it clear that the companies who issued securities with the help of the ICO should have been up to registration standards.

She added, "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".

However, Munchee ultimately chose to refund the investors, divvying up their $15 million token sale back to the contributors.

Steven Peikin, Co-Director of the SEC's Enforcement Division, stated that the SEC's orders, in which the two companies have to refund their investors and register their tokens with the federal agency, provides "a model for companies that have issued tokens in ICOs and seek to comply with the federal securities laws". Both companies are now required to offer to compensate investors who still hold the tokens or who sold them at a loss.

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.

The companies involved have, however, agreed to settle the case without admitting to or denying the findings from the regulator. 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.

The SEC complaint notes that Paragon "engaged a celebrity to promote the offering", the rapper Jayceon Terrell Taylor, also known as "The Game". The investigation into AirFox was conducted by Colin D. Forbes, Emily R. Holness, and Michael J. Vito and supervised by Celia D. Moore, Amy S. Gwiazda, and John T. Dugan of the Boston Regional Office. However, the SEC warned that securities law may apply to some virtual tokens depending on their specific characteristics.

Other reports by Click Lancashire

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