The cryptocurrency market is reeling after the SEC fined two companies that didn’t register initial coin offerings as securities and allowed investors to reclaim their money.
“There’s a global crackdown coming,” said David Silver, a securities fraud and investment loss attorney from Coral Springs, Florida. “Government wasn’t going to be intimidated by a bunch of libertarians and anarchists -- in the next year or two, we’ll see more than just enforcement actions.”
The U.S. Securities and Exchange Commission pointed to the consent decrees and investor reimbursement against Airfox and Paragon Friday as a roadmap for other crypto firms to follow, spurring concern that many blockchain projects would declare bankruptcy if forced to comply. Both companies will have to register their tokens as securities.
Airfox, an emerging markets financial services company, and Paragon, a blockchain startup in the cannabis industry, conducted token sales last year. Boston-based Airfox raised $15 million in digital assets to finance the development of a mobile app that allows users in emerging markets to monetize clicks on advertisements. Paragon raised $12 million to fund blockchain projects for the cannabis industry.
“The sell-off is related to enforcement, which is almost certainly underway," said Justin Litchfield, chief technology officer at ProChain Capital. "Projects are being made to return investor money, which, after having spent a ton of money marketing their $100 million ICO on a lavish party-filled road-show that was the norm for this vintage of ICOs, will be tough.”
While the SEC said it encourages technological innovations in capital markets, the agency stressed that “market participants must still adhere to our well-established and well-functioning federal securities law framework when dealing with technological innovations, regardless of whether the securities are issued in certificated form or using new technologies, such as blockchain.”
“What we’re looking at is the simple progression of what was always going to happen,” Silver said. “Regulators always step in. This always had to happen.”