AirToken & Paragon Coin to Become Securities After Airfox, Paragon Settle SEC Charges
The US SEC required two ICO firms to register their tokens as securities and return funds to harmed investors.
The Securities and Exchange Commission (SEC), announced on Friday that it had settled its charges against two firms involved with initial coin offerings (ICO), a form of fundraising based on cryptocurrencies. The SEC said that the cases represented a precedent when it comes to civil penalties for ICO firms violating the securities offering registration requirements. As a result, CarrierEQ and Paragon Coin, the two targeted firms, agreed to compensate harmed investors and register their tokens as securities as stipulated by the law. The companies will also have to pay penalties and report to the SEC on a regular basis.
The US securities regulator found that CarrierEQ, the operator of Airfox, and Paragon Coin, held their ICOs last year after the SEC released its DAO Report of Investigation, which clearly mentioned that ICO-based tokens might be viewed as securities.
Boston-based Airfox, a startup that raised about $15 million through the sale of its AirToken, planned to use the funds for the development of a blockchain-based, peer-to-peer (P2P) ecosystem fueled by its ERC-20-based token. The project aims to reach the unbanked population in emerging markets.
On Friday, AirToken, which ranked below 800 on Coinmarketcap, added over 48% following the SEC news, but soon lost its gains over the weekend.
Paragon, which released the Paragon Coin (PRG), raised about $12 million to integrate a blockchain platform in the cannabis market and support the legalization of cannabis.
PRG behaved in a different manner but has also demonstrated increased volatility.
The SEC found that neither Paragon nor Airfox registered their ICOs nor did they get an exemption to registration requirements.
Stephanie Avakian, co-director of the regulator’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.”
Steven Peikin, another co-director of the same division, said:
“By providing investors who purchased securities in these ICOs with the opportunity to be reimbursed and having the issuers register their tokens with the SEC, these orders provide a model for companies that have issued tokens in ICOs and seek to comply with the federal securities laws.”
Each one of the two firms will have to pay $250,000 in penalties and return funds to harmed investors. Airfox and Paragon will register their tokens as securities under the Securities Exchange Act of 1934, thus filing regular reports with the SEC for no less than a year. The companies didn’t admit or deny the charges but agreed with the imposed conditions.
It seems that the SEC became more active at monitoring ICO and cryptocurrency-related firms. Earlier this month, the regulator announced that it had settled the charges with the founder of token trading platform EtherDelta, who, as the Commission claims, was operating a securities exchange that was not registered. Thus, the founder agreed to pay a total of $388,000 in fines. This case is another precedent for the SEC, as it hadn’t charged any other token exchange operator before.
Interestingly, both Airfox and Paragon released announcements during the same day when the SEC published its news about the settlements, perhaps trying to offset the negative sentiment and maintain the good image. Paragon announced a partnership with Civic, while Airfox presented its updated vision for AirToken.
Paragon was the only of the two to directly mention the deal with the SEC in a separate post. As one could expect, the situation was presented as a very positive achievement. The startup CEO Jessica VerSteeg commented:
“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.”
“Working shoulder to shoulder with an amazing team of lawyers from Schulte Roth & Zabel LLP, as well as an extremely knowledgeable team at the SEC, we have been able to reach this trailblazing deal that we expect will serve as the model for compliance for ICOs going forward,” she added.