On Nov. 16, 2018, the U.S. Securities and Exchange Commission (SEC) announced that it had settled charges against two companies – Carriereq Inc., d/b/a Airfox, and Paragon Coin Inc. – for securities registration violations arising out of previously conducted initial coin offerings (ICOs). The cases are the SEC's first non-fraud ICO registration cases since the December 2017 case against Munchee Inc. The SEC published the cease-and-desist orders, which both imposed $250,000 penalties, required the companies to register the tokens under the Exchange Act by filing a form 10, and required the companies to implement an online claims process allowing token purchasers to recover amounts paid for the tokens.
On Nov. 27, 2018, a U.S. District Judge, the Honorable Gonzalo Curiel, denied the SEC's motion for a preliminary injunction to halt a planned ICO and freeze the assets of Blockvest LLC. In reviewing the SEC's motion, the court cited SEC v. W.J. Howey Co. and found that there were disputed issues of fact as to what the investors relied on prior to purchasing the Blockvest tokens. The court also found there was not a sufficient demonstration of an expectation of profits by the investors to establish that the tokens met the definition of a security. In denying the SEC's motion, the court did not rule whether or not the tokens were securities, but rather found there were insufficient facts to determine the issue. The opinion also noted the defendant's agreement not to proceed with the ICO without giving the SEC advance notice as a factor weighing against granting a preliminary injunction.
On Nov. 27, 2018, the Texas Securities commissioner issued an emergency cease-and-desist order to a company called My Crypto Mine for registration violations and fraud and materially misleading and deceptive statements in connection with the offer of investments. And on Nov. 28, 2018, the U.S. attorney's office for the Northern District of Texas announced that AriseBank's CEO was arrested by the FBI and charged with securities fraud and wire fraud in connection with an ICO. The defendant is alleged to have made several materially false and fraudulent misrepresentations while converting investor funds for his own personal use. Finally, on Nov. 29, 2018, the SEC announced that it has accepted settlements and entered consent orders against Floyd Mayweather Jr. and Khaled Khaled (also known as "D.J. Khaled") related to charges of promoting securities issued in ICOs without fully disclosing that they were being compensated by the entities offering the ICO tokens.
For more information, please check out the following links:
- Two ICO Issuers Settle SEC Registration Charges, Agree to Register Tokens as Securities
- ADMINISTRATIVE PROCEEDING File No. 3-18898
- ADMINISTRATIVE PROCEEDING File No. 3-18897
- SEC Debuts Roadmap for Resolving Illegal ICOs
- Judge to SEC: This ICO Isn't a Security Offering
- Full Text Order: Judge to SEC: This ICO Isn't a Security Offering
- Texas Securities Commissioner Issues Cease and Desist Order to Crypto Investment Firm
- EMERGENCY CEASE AND DESIST ORDER
- Cryptocurrency CEO Indicted After Defrauding Investors of $4 Million (AriseBank)
- ADMINISTRATIVE PROCEEDING File No. 3-18907
- ADMINISTRATIVE PROCEEDING File No. 3-18906
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