The US Securities and Exchange Commission (SEC) has brought two first-of-their-kind settlements tied to cryptocurrencies on Friday, fining a firm that promoted “token-denominated ecosystem” and another startup aiming to use Blockchain to promote cannabis without meeting registration requirements.
A communiqué on the matter issued by the commission said that the principles of two ICOs, CarrierEQ and Paragon Coin, agreed to pay $500,000 to settle charges, without admitting or denying the allegations. They also agreed, within 90 days, to register their tokens as securities pursuant to the Securities Exchange Act and file periodic reports with the SEC for at least one year.
Boston-based technology firm CarrierEQ Inc, also known as Airfox, raised $15 million from more than 2,500 retail investors to finance the development of its blockchain-based platform, that was meant to facilitate purchases of ICO tokens. In turn, Paragon is yet another blockchain outfit which raised over $12 million in an ICO to build a “social network of cannabis startups,” but reportedly lost 90 percent of its market cap.
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SEC’s Murky Approach
The SEC claims that both offerings ran afoul of securities laws because the tokens being offered could be considered securities, and thus the principles should have registered with the SEC as broker-dealers.
The regulatory status of ICOs, and cryptocurrency offerings generally, remains somewhat murky. However, the SEC warned that securities law might apply to some virtual tokens depending on their specific characteristics. In those cases, securities registration, disclosure and other requirements apply.
Stephanie Avakian, Co-Director of the SEC’s Enforcement Division, commented: “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. 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.”