Crypto Frontline

Widely regarded as one of the toughest financial watchdogs in the world, the SEC took some drastic measures against two illegal ICOs recently. Thus far, the agency put out some strong critics related to digital assets and ICOs but did not interfere in a meaningful way.

A few months ago, it had developed a fake ICO website in order to make ICO investors fully aware of ICO scams characteristics.

Two companies need to face penalties

According to a recent SEC press release, two blockchain-based startups, called Paragon and CarrierEQ had managed to reach a settlement because of their failure to register token sales as securities offerings.

Each company will face a fine of $250,000 and all the ICO investors can now request full refunds.

If we talk about securities, regulation in the United States is very strict, thanks to The Securities Act adopted in 1934, soon after the Great Depression, in order to prevent another financial market meltdown of that size.

Steven Peikin, the SEC Enforcement Co-Director, spoke recently about this issue and mentioned the following:

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.

This seems to be just a tougher approach from the SEC aimed at convincing new ICOs about the necessity of registered as securities issuers if the situation requires it.

Even though the SEC had stated a few months ago that Ethereum is not a security due to its level of decentralization, it looks like that does not apply to all ERC-20 compliant tokens. It was the case for Paragon, one of the above-mentioned companies sanctioned by the SEC.

Which means each ICO investor should make its own homework, study the white paper and the business model behind the company, before deciding to invest in a blockchain-based start-up. This should be done by each blockchain-based company and it should be part of their activity to inform any potential investors.

Following this action from the SEC, it is very likely that new companies will start to comply with regulation and register with the agency as a securities issuer if it is necessary. But still, this had only happened in the US, what will happen with other western country is still an unanswered question.