There was huge news on the ICO/token sale front from the SEC on Friday regarding two initial coin offering (ICO) issuers. Let’s break it down.
What happened? Cease-and-desist orders were entered under the Securities Act of 1933 against two companies that raised money in token sales in late 2017. The SEC says:
(1) each company’s token was a security
(2) each broke U.S. securities laws because they
(a) failed to register with the SEC
(b) did not qualify for an exemption
Who are the companies? Here is how the orders describe them:
- “Paragon is an entity, established in July 2017, to ‘deploy a suite of blockchain enabled products to organize, systemize and bring verification and stability to the cannabis industry.’”
- Airfox was “[a]s of August 2017 … a Massachusetts business that sold technology to mobile telecommunications companies” that allowed people to earn free or discounted airtime by watching advertisements. In August 2017, Airfox ‘developed a business plan that included raising capital through the sale of AirTokens, and then introducing a mobile application that would allow users to earn AirTokens, exchange them for free or discounted mobile data and, ultimately, other goods and services.’”
How much money did they raise? Airfox raised $15 million in its ICO. Paragon raised $12 million.
If you sell securities in interstate commerce in the U.S. you have to register with the SEC unless you fall within an exemption. Neither Airfox nor Paragon did this. That’s what these two orders and the remedies they impose deal with.
What are the implications?
Read more: The SEC cracks down on two ICOs, creating a template for future enforcement