The Securities and Exchange Commission (SEC) of the United States has issued its first civil penalties for conducting initial coin offerings (ICOs) without proper securities registration. Paragon (PRG) and Airfox (AIR) have each been fined USD 250,000, ordered to refund harmed investors, register the tokens as securities, and file periodic reports with the SEC. This is the first time the SEC has issued civil penalties against ICOs that launched after the SEC announced that ICOs could not be conducted without proper approval.
PRG market crashed 30% after the news was made public, while AIR rallied 30%. PRG raised USD 12 million during its ICO, but only had a USD 4 million market cap prior to the SEC decision. Therefore, investors can now be refunded for their full investment, which could bankrupt Paragon Coin Inc. Likewise, AIR raised USD 1 million during its ICO, and now the market cap is near USD 15 million. However, it is unclear why AIR rallied since the company behind it, CarrierEQ Inc., could also end up going bankrupt due to the impending investor payouts.
Despite the fact that this decision seems catastrophic for the tokens involved, the SEC thinks this could be a model case for tokens that desire to be compliant. Co-Director of the SEC’s Enforcement Division, Steven Peikin, says “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”.
This case follows the SEC’s first case against an ICO which involved no civil penalties, since the company, Munchee Inc., returned money to investors and did not end up selling the token.
It is important to note that the PRG and AIR ICOs occurred in 2017. It is likely that more civil penalties like this will be issued against ICOs that launched in 2017 and 2018.
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