illegal ICO

Paragon and Airfox Face the Ire of SEC in Recent Clampdown

As per a press release published by the Securities and Exchange Commission, the Blockchain-based solution company for the Cannabis industry, Paragon, and a company called Airfox, which provides financial services for emerging markets- both have arrived at settlements with the SEC for failure to register their tokens sales as security offerings.

As per the United States rules, to sell anything that resembles an investment contract without registering with the Securities and Exchange Commission is considered a crime. This piece of legislation, called the Securities Act of 1934, was created to avoid a future ‘Great Depression’ of the 1930.

In the above case, both of the firms have each agreed to a settlement of USD 250,000, along with many other actionable items. All the investors in the companies will be able to request for a refund for the investment made by them during the ICO token sale.

Paragon had sold as much as USD 12 million in tokens during the token sales, yet its current market capitalizations stands at a third of that amount at USD 3,000,000. This would mean a possible bankruptcy for the firm.

The press release by the SEC read:

“The orders impose $250,000 penalties against each company and include undertakings to compensate harmed investors who purchased tokens in the illegal offerings. The companies also will register their tokens as securities pursuant to the Securities Exchange Act of 1934 and file periodic reports with the Commission for at least one year. Airfox and Paragon consented to the orders without admitting or denying the findings.”

Interestingly, SEC has only prosecuted one non-fraud ICO case, for a company that went by the name of Munchee. On SEC’s intervention, Munchee eventually gave all the funds back to the investors.

According to Steven Peikin, the SEC Enforcement Co-Director, the legal actions against Paragon and Airfix will encourage other US based ICOs to registers with SEC in the future. He elaborated:

“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.”