As you may have seen, the SEC settled charges today against two companies that sold digital tokens in ICOs, imposing $250,000 penalties against each company. Both Airfox and Paragon are to compensate harmed investors who purchased tokens and will register their tokens as securities.
To add to our prior discussion of crypto regulation, we added some comments from Maxwell R. Rich, Regulatory Advisor at AngelList & Deputy General Counsel at Republic, the AngelList-backed crowdfunding platform, on the implications of this enforcement for existing utility and security token projects.[REITs]
Maxwell R. Rich, Republic’s Deputy General Counsel:
“Industry participants should study this settlement closely as it provides good guidance on how to avoid violating U.S. Federal Securities Laws, showing the pitfalls of not following them and more interestingly, may provide novel guidance for token issuers looking to register their digital tokens with the SEC post-offering.
“Registered Securities are generally freely tradeable. An example of this would be an IPO issuer, such as Google. And now, anyone can purchase shares of Alphabet. The problem is that to date, no token has been registered with the SEC through the IPO process. Which is why this settlement is so interesting — it’s indicating there is an alternative method for issuers to register their security tokens, whether they are exploring any digital assets securities offerings or are looking for ways to bring their previously unregulated ICO into compliance.
“It also reminds token issuers that since the release of the DAO Report, the SEC is taking a hard stance on token sales unless they fall under a registration exemption such as Reg D, Reg CF or Reg S.
“Utility tokens that are offered through forward agreements such as SAFTs and DPAs will likely need to be registered or exempt from registration.”