Paragon and Airfox Penalized $250K Each for Selling Unregistered Securities

If there is an agency that has worked so hard towards providing regulatory clarity at least in the US, that’s the US Securities and Exchange Commission. The agency clarified that both Bitcoin and Ethereum are commodities. However, it considered that most ICOs are most likely considered securities.

And this is where it gets tricky. Cryptocurrency exchanges are inviting sanctions from the SEC if they list tokens that are considered by the agency as securities. The SEC is now scrutinizing different tokens looking in an attempt to clear the crypto market.

Paragon ICO over a year ago was questioned. However, Paragon responded with legal threats to criticisms thrown against them. Fast forward to today, the market capitalization for Paragon is now only one-third of what it was.

In a press release today by the Securities and Exchange Commission, Paragon and Airfox have reached the agency for settlements for their failure to register tokens as securities. Since 1934, it is a crime to sell unregistered securities.  The main reason for the Securities Act of 1934 is to prevent a crash like that happened in 1929 that led towards the Great Depression.

The settlement was at $250,000 for each company. There were also some notable items of responsibility including all affected investors have an opportunity to request for a refund.

Paragon Selling $12 Million in Tokens

Paragon was able to sell tokens worth $12 million. As for the sum market capitalization of Paragon, it is just around $3,000,000.

It seems that people already lost interest to whatever it was they were offering. The SEC press release mentioned that “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 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”.

Securities or Commodities?

If you are going to ask SEC Enforcement Co-Director Steven Peikin, he believes that the enforcement of actions on Airfox and Paragon can actually be a good thing as it can stimulate the registration of US-based ICOs. He said that “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”.

There has been a debate in 2018 whether or not cryptocurrencies are considered securities or commodities. In fact, Ripple has been in the middle of a lawsuit. The lawsuits claim that Ripple sold investors with a security. Recently, Ripple’s legal team successfully transferred the case from state to federal court. Perhaps, its legal team thinks that it increases the chances of winning the case.

We can expect more ICOs to be apprehended by the SEC at this point. The agency has been doing its best in order to put things into order within the industry.