SEC Charges Two Firms With ICO Violations

The U.S. Securities and Exchange Commission late last week settled charges with two companies it charged with offering digital tokens in a manner that ran afoul of rules.

According to the Securities and Exchange Commission (SEC) press release issued on November 16, the two technology companies agreed to register their digital token offerings as securities and to pay back investors. It is the first time the SEC slapped companies with penalties for getting around rules via initial coin offerings (ICOs), noted Reuters in a report. It also signals an increase in the SEC’s oversight of the cryptocurrency market. Back in March the SEC said it would treat most token offerings as the same as securities offerings and that it will impose fines on those that skirted the laws.

The two companies that settled with the SEC are CarrierEQ and Paragon Coin Inc. Combined, the two raised $27 million selling tokens to investors. According to the SEC’s orders, both CarrierEQ (Airfox) and Paragon Coin conducted ICOs in 2017 after the SEC warned that ICOs can be securities offerings. Airfox, a Boston-based startup, raised approximately $15 million worth of digital assets to finance its development of a token-denominated “ecosystem” while Paragon, an online entity, raised approximately $12 million worth of digital assets to develop and implement its business plan to add blockchain technology to the cannabis industry and work toward legalization of cannabis. Neither Airfox nor Paragon registered their ICOs pursuant to the federal securities laws, nor did they qualify for an exemption to the registration requirements, the SEC said in the release. 

They two have agreed to pay back investors and will each pay $250,000 in fines as part of a settlement agreement with the SEC. The companies didn’t admit or deny the charges. Under the settlement, the SEC is requiring both companies to file reports periodically with the SEC for 12 months and potentially longer.  

“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,” said Stephanie Avakian, one of the SEC’s enforcement chiefs.“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.”


New PYMNTS Report: Preventing Financial Crimes Playbook – July 2020 

Call it the great tug-of-war. Fraudsters are teaming up to form elaborate rings that work in sync to launch account takeovers. Chris Tremont, EVP at Radius Bank, tells PYMNTS that financial institutions (FIs) can beat such highly organized fraudsters at their own game. In the July 2020 Preventing Financial Crimes Playbook, Tremont lays out how.