Airfox, a company with some grand aims that didn’t quite come to fruition, has been hit with a civil penalty by the US Securities and Exchange Commission.
Mobile airtime, data, and currency
The company has been ordered to contact all those that purchased tokens relating to its initial coin offering of October 2017, and inform them that they have the right to claim their money back, plus interest. This includes people that sold their tokens at a loss.
The payouts will be made in US dollar, according to the token valuation at the time of sale.
Airfox, which has offices in Boston and São Paulo, was founded in 2016 by Victor Santos, a “social entrepreneur” and onetime employee of Google.
According to its website, Airfox was created to offer financial services to the unbanked in emerging markets. The homepage displays statistics relating to the billions of people without bank accounts in the developing world and identifies a potential market worth $90 billion. The token “Facilitates the transfer of mobile airtime, data and currency,” and acts as a currency which can be exchanged for goods and services.
The SEC’s complaint is that it did not register its tokens as securities. This issue has come to a head because the market valuation of its token has collapsed; after raising $15 million in its ICO, the token is now worth just over one million dollars.
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Cost of hype
This has become a common theme in the aftermath of last year’s cryptocurrency frenzy when the word ‘blockchain’ was almost as good a password to people’s bank accounts as their own. Diar found that 70 percent of tokens were worth less than what the companies behind them made their ICOs – 402 companies examined raised a total of $8.2 billion, and are now worth approximately $2 billion.
While this is partly the result of the natural decline of the cryptocurrency market’s inflated prices, some argue that many companies should be held accountable for selling substandard (or non-existent products).
Of course, laws cannot be applied retroactively; however, the SEC ruled in July 2017 that tokens that resemble securities should register as such.
Stephanie Avakian, Co-Director of the SEC’s Enforcement Division, said: “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.”
The SEC also ordered Paragon, which aims to build a token-based economy for the cannabis industry in the US, to pay back its investors. Many have criticised the company over its unclear aims, lack of transparency, and overvalued token – indeed, it raised $12 million in its ICO, but its token is now worth just under $4 million.
Interestingly, CEO Jessica VerSteeg paints this as a positive development. She told Green Market Report: “Paragon is making history! We’re excited to announce an important settlement we’ve been working on for over a year — a very positive agreement with the U.S. Securities and Exchange Commission that will effectively put an end to the uncertainties of the legal status of our PRG tokens…This resolution with the SEC gives Paragon the path forward to full compliance with the U.S. securities laws…”