The Securities and Exchange Commission (SEC) fined two more Initial Coin Offerings due to offering unregulated securities. The firms fined are Airfox and Paragon Coin, from Boston. These are the first ICOs accused and fined due to offering unregistered securities. This could be the start of a new stance of the SEC in front of security tokens.
SEC Fines Two ICOs
The SEC has, at last, turned to attack mode when talking about ICOs. At least that is what it seems now. They waited close to a year to file the first case about unregulated securities. This time, two ICO’s based in Boston will have to pay fines. These startups will have to “return funds to harmed investors, register the tokens as securities, file periodic reports with the Commission, and pay penalties,” according to a press release from the SEC.
Airfox, one of the startups fined, raised $15 million in an ICO last year. Airfox proposes a platform that can help users pay tickets, bills and top up prepaid phone lines. The other cryptocurrency startup, Paragon Coin, aims to build a cannabis ecosystem for the whole country, working on the legalization of it. It raised $12 million.
These two startups will have to pay more than $250K each and comply with the SEC requirements to keep operating. However, the compensation for harmed investors has not been clarified yet. This is the first case of this kind and it is still unclear which procedures will be applied.
Taming The ICO Situation
Initial Coin Offerings got very popular last year. Every startup out there wanted to crowdfund their idea via an ICO. This was the Wild West of investment and the lack of knowledge about these forms of investment made people lose money. The SEC was slow to act also because these were new instruments, unlike anything in the market.
But according to these last facts, the SEC is now acting to protect investors and to ensure that these startups comply with the 1934 securities law. In the USA, there is no ICO specific law, so securities laws apply to them on a case by case basis.
Stephanie Avakian, Co-Director of the SEC’s Enforcement Division declared:
“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,”
making clear that the SEC will keep regulating the space to tame the ICO situation.
The SEC is walking a slippery slope, and will have to balance enforcing with clarification of the laws.