The U.S. Securities and Exchange Commission has settled charges against two initial coin offerings that raised a total of $27 million selling unregistered securities tokens using the ethereum blockchain.
CarrierEQ, the Boston company behind a $15 million ICO for Airfox, a project to bring mobile banking to emerging markets, agreed to pay a $250,000 penalty and return the funds it raised.
Online startup Paragon agreed to pay a $250,000 penalty and return the $12 million it raised by selling tokens on the ethereum blockchain to build a platform for the sale of legalized marijuana.
Neither Airfox nor Paragon admitted to or denied the findings as part of agreeing to pay the penalty.
Coming less than a week after the first SEC settlement with a cryptocurrency exchange, the pair of charges show the regulator’s increased level of hands-on involvement in the space.
“We have made it clear that companies that issue securities through ICOs are required to comply with existing statutes and rules governing the registration of securities,” said Stephanie Avakian, co-director of the SEC’s enforcement division, in a statement. “These cases tell those who are considering taking similar actions that we continue to be on the lookout for violations of the federal securities laws with respect to digital assets.”
Both companies also are expected to register their tokens as securities pursuant to the Securities Exchange Act of 1934 and to file periodic reports to the commission for at least one year.
Just last week, in the first settlement of its kind, the SEC reached an agreement with the founder of cryptocurrency exchange EtherDelta, a decentralized operation that relied largely on self-executing code instead of traditional central management. The SEC penalized EtherDelta’s creator nearly $400,000 as part of its ongoing investigation.
Today’s pair of ICO cases come almost exactly one year after the SEC’s first non-fraud ICO registration case, involving Munchee, a now-shuttered project to let iPhone users review restaurants using photos. The commission did not impose a penalty against Munchee, which ceased operations before delivering any tokens and returned proceeds to investors.
The charges against Carrier EQ and Paragon come during a rough time for cryptocurrency markets, which have have taken a huge hit in the past seven days, falling from $212 billion to $183 billion. Historically, regulatory decisions of this magnitude have had short-term impacts on the price of bitcoin and other cryptocurrencies.