Financial regulators in Massachusetts on Tuesday clamped down on initial coin offerings (ICOs) from five tech startups, saying the firms failed to register their digital coins as securities.
In a move that signals how the US watchdogs will aim to police a recent deluge of cryptocurrency-linked fundraising, the Massachusetts Securities Division stopped Mattervest Inc, Pink Ribbon ICO, Across Platforms Inc, Sparkco Inc, and 18 Moons from offering their own digital tokens. They were all either incorporated in Massachusetts or named the state as their principal place of business.
The order also forces the named ICO organizers to return cash to investors in case they had raised any funds.
“An offering done to avoid registration with regulators should be seen as a red flag, and you should contact my office before investing,” said William Galvin, the secretary of the commonwealth in Massachusetts.
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The five firms were linked to promotional campaigns on Twitter, Reddit, and YouTube, though most of those social channels have announced restrictions on cryptocurrency and ICO adverts.
The continued clampdown on ICOs strikes at the heart of a legal theory that had allowed several startups to raise decent investments last year. Previously, the organizers argued that their digital coins weren’t subject to securities laws if the issuance was made as a utility, where contributors acquire certain rights to use a service.
The SEC has repeatedly warned investors against throwing money into ICOs, as such crowdsales are intended to launch an investment scheme without even attempting to follow US laws.
In December 2017, the top US regulator halted the ICO of Munchee Inc, which was seeking to raise up to $15 million from thousands of investors to develop an iPhone app for restaurant meal reviews.
At the time, the California-based company agreed to stop its ICO and refund investor proceeds after the SEC released a report stating that its ‘MUN tokens’ fit the hallmarks of a security.