In late November, 2018, the U.S. Securities and Exchange Commission (SEC) settled registration charges with two issuers of Initial Coin Offerings (ICOs), CarrierEQ Inc. (Airfox) and Paragon Coin Inc. (Paragon). These were the SEC’s first cases imposing civil penalties solely for ICO securities offering registration violations.

The SEC found that neither Airfox nor Paragon registered their ICOs under U.S. federal securities laws, nor did they qualify for an exemption to the registration requirements. According to the SEC, both Airfox and Paragon conducted ICOs in 2017 after the Commission warned that ICOs can be securities offerings in its DAO Report of Investigation.

Without admitting or denying the orders against them, Airfox and Paragon have consented to the orders and have agreed to return funds to investors, register the tokens as securities under the Securities Exchange Act of 1934, and file periodic reports for at least one year with the Commission. In addition, each company has agreed to pay $250,000 USD in penalties.

Airfox, a Boston-based startup, raised approximately $15 million worth of digital assets to finance its development of a token-denominated “ecosystem” starting with a mobile application that would allow users in emerging markets to earn tokens and exchange them for data by interacting with advertisements.  Paragon, an online entity, raised approximately $12 million worth of digital assets to develop and implement its business plan to add blockchain technology to the cannabis industry and work toward legalization of cannabis.

The notice, along with the related orders is available for download from the SEC website.

For more information, please call Barbara Hendrickson at BAX Securities Law (416) 601 -1004.

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