Digital Tokens: Two ICOs Settle SEC Charges

As you may have seen, the SEC settled charges today against two companies that sold digital tokens in ICOs, imposing $250,000 penalties against each company. Both Airfox and Paragon are to compensate harmed investors who purchased tokens and will register their tokens as securities.

To add to our prior discussion of crypto regulation, we added some comments from Maxwell R. Rich, Regulatory Advisor at AngelList & Deputy General Counsel at Republic, the AngelList-backed crowdfunding platform, on the implications of this enforcement for existing utility and security token projects.

[REITs]

Q3 hedge fund letters, conference, scoops etc

Maxwell R. Rich, Republic’s Deputy General Counsel:

“Industry participants should study this settlement closely as it provides good guidance on how to avoid violating U.S. Federal Securities Laws, showing the pitfalls of not following them and more interestingly, may provide novel guidance for token issuers looking to register their digital tokens with the SEC post-offering.

“Registered Securities are generally freely tradeable. An example of this would be an IPO issuer, such as Google. And now, anyone can purchase shares of Alphabet. The problem is that to date, no token has been registered with the SEC through the IPO process. Which is why this settlement is so interesting — it’s indicating there is an alternative method for issuers to register their security tokens, whether they are exploring any digital assets securities offerings or are looking for ways to bring their previously unregulated ICO into compliance.

“It also reminds token issuers that since the release of the DAO Report, the SEC is taking a hard stance on token sales unless they fall under a registration exemption such as Reg D, Reg CF or Reg S.

“Utility tokens that are offered through forward agreements such as SAFTs and DPAs will likely need to be registered or exempt from registration.”



About the Author

Jacob Wolinsky
Jacob Wolinsky is the founder of ValueWalk.com, a popular value investing and hedge fund focused investment website. Prior to ValueWalk, Jacob was VP of Business Development at SumZero. Prior to SumZero, Jacob worked as an equity analyst first at a micro-cap focused private equity firm, followed by a stint at a smid cap focused research shop. Jacob lives with his wife and four kids in Passaic NJ. - Email: jacob(at)valuewalk.com - Twitter username: JacobWolinsky - Full Disclosure: I do not purchase any equities anymore to avoid even the appearance of a conflict of interest and because at times I may receive grey areas of insider information. I have a few existing holdings from years ago, but I have sold off most of the equities and now only purchase mutual funds and some ETFs. I also own a few grams of Gold and Silver