SEC Cracks Down On Paragon And Airfox ICO As Markets Tumble
Two ICO startups are set to register their respective tokens as securities following charges by the U.S. Securities and Exchange Commission (SEC).
The U.S securities regulator settled with the two firms after it contended that they (the two crypto companies), violated the securities laws by offering security tokens during their 2017 initial coin offerings.
Carrier EQ (Airfox) and Paragon (PRG)
According to SEC’s press release published on Friday, both Carrier EQ (Airfox) and Paragon Coin failed to register the tokens as securities when offering them to investors.
As a result, the two crypto startups will now have to register as security tokens and refund their respective investors.
The SEC has imposed a $250,000 fine on each company, with both now required to file periodic reports. The firms will also be required to reimburse ICO investors.
Airfox is a crypto startup that seeks to make it easy for users to transfer currency, mobile airtime, and data. The firm also aims to develop a platform for advancing micro-loans as well as facilitating payments.
Airfox raised around $15 million in its October 2017 ICO in which investors purchased the firm’s AirTokens.
Paragon Coin, on the other hand, aimed at leveraging blockchain technology to help transform the cannabis industry.
The startup seeks to use the new technology to make supply chains within the industry more transparent and efficient.
Paragon raised nearly $12 million in its token sale in 2017.
SEC’s first civil penalty for an ICO
The two cases represent the first time the SEC has moved to impose “civil penalties solely for ICO securities offering registration violations,” the regulator said in its statement.
In explaining their decision to impose fines and require further compliance, SEC’s co-director in the Enforcement Division Stephanie Avakian emphasized that firms that wish to issue securities via initial coin offerings must comply with existing laws.
She also added that:
“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.”
Paragon and Airfox aren’t the first firms to reach an agreement to refund investors. In December 2017, the SEC halted an ICO by Munchee.
The startup, like Paragon and Airfox in this case, consented to the regulator’s order on refunding investors who participated in the firm’s $15 million token sale. However, unlike now, the SEC did not compel Munchee to pay a fine.
Also notably, SEC’s settlement with Airfox and Paragon follows on agency’s revelations that it had settled the charges leveled against EtherDelta founder Zachary Coburn. He had been charged with running an unregistered securities exchange.
The SEC’s tough stance on cryptocurrencies and ICOs continues, but it appears that the regulator could be turning its attention to token trading platforms.
It also comes at a time some crypto enthusiasts have predicted that startups could be looking at pivoting towards the security token offering (STO) as a new method of raising funds.
Also notable is Ohio Congressman Warren Davidson’s initiative to introduce a bill that would reduce SEC’s powers over the ICO and crypto industry.
Disclaimer: This is not investment advice. Cryptocurrencies are highly volatile assets and are very risky investments. Do your research and consult an investment professional before investing. Never invest more than you can afford to lose. Never borrow money to invest in cryptocurrencies.