The US authorities have decided to crack down on two startups who raised funds through an ICO. They criticize them for failing to register their respective token sales as securities offerings.
According to a statement released yesterday by the US Securities and Exchange Commission (SEC), Paragon and Airfox (registered as CarrierEQ) have reached an agreement with the government agency. It blames them for not having officially declared their sales of tokens.
Indeed, as specified in the Securities Act of 1934, any investment contract must be registered with the SEC or have previously been subject to an exemption. This law was introduced to protect savers and to avoid another stock market crisis similar to that of 1929.
The two companies each agreed to pay a fine of $ 250,000. They must also allow all investors to obtain a refund.
And if we take the case of Paragon, they should be numerous to make such a request. Indeed, the “Market Cap” of the token (PRG) is now only $ 3 million – a quarter of what the company was able to lift at its ICO.
This is what the SEC’s press release reads:
“We are fining $ 250,000 for each company. They also pledged to compensate the injured investors, who bought tokens through these illicit offers. In addition, the companies will record their tokens as financial securities, in accordance with the rules set out in the 1934 Exchange Act, and will provide regular reports to the Commission for at least one year. Airfox and Paragon accepted this decision, without admitting or denying the charges.
It should be noted that paragraph 17 of the Paragon decision illustrates some understanding of the functioning of Tokens:
“The PRG tokens were distributed to buyers on October 22, 2017, on the Ethereum blockchain, through the ERC-20 protocol.”
Steven Peikin, the co-director of the SEC’s prosecution service, said the initiative should prompt other US-based startups to register their fundraising efforts to avoid such lawsuits. :
“By offering investors who purchased securities in these ICOs the opportunity to be repaid, and by requiring issuers to register their tokens with the SEC, these decisions provide a model for companies that have issued tokens in the US. ICOs who wish to comply with the federal securities rules “.
“We challenge you to drive an ICO”
SEC's message to ICOs is quite clear
Conduct an ICO, we dare you. pic.twitter.com/phqr4EL2ij
— Joseph Young (@iamjosephyoung) November 17, 2018
Nic Carter goes further, believing that this decision could mark the end of these fundraisers and the startups that led them:
Landmark case today. This is going to happen hundreds and hundreds of times in the next 2-3 years until all the ICOs are gone. pic.twitter.com/MuT515BzeD
— nic carter (@nic__carter) November 16, 2018
For his part, Il Maledetto Toscano wished to temper these concerns, saying that he was, according to him, “impossible to stop technological progress and the massive adoption of cryptocurrencies”:
Nothing on Earth can stop technological progress and the mass adoption of crypto currencies. Governments try to regulate not to protect citizens but to protect themselves. More and more people know this. Governments are traditionally conservative and afraid of huge social changes
— Il Maledetto Toscano (@agasp68) November 17, 2018
The idea that a majority of startups who have driven an ICO would be concerned is also defeated by CryptoSpaced:
This covers American ICOs/ ICOs selling to US investors, which 99% of companies has been avoiding since forever
The whole ICOs are dead sentiment seems absurd tbh
— CryptoSpaced (@cryptospaced) November 17, 2018
“This only applies to US ICOs / ICOs targeting US investors, which 99% of companies have tried to avoid ever since.
Honestly, the feeling that all ICOs are “dead” seems to me absurd “.