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Crowdfund Insider — Templum Comments on SEC ICO Enforcement Action: “We are Likely to See Continued Enforcement Actions & Litigation”

Sam Belden

Sam Belden

On November 16th, the Securities and Exchange Commission (SEC) announced its first enforcement actions against initial coin offerings (ICOs) that did not file for an appropriate securities exemption following the SEC’s DAO report. The SEC settled claims with both Paragon and AirFox with each ICO issuer required to refund all investors in their ICO while paying thousands of dollars in fines. This SEC action established a precedent for all other post-DAO ICOs while sending a shudder to any crypto firm that ignored the clear warnings by the SEC.

Some industry participants said issuers that held illegal ICOs may now expect to pay a penalty to the SEC and register their tokens as securities under Section 12(g) of the Securities Exchange Act of 1934.

As registered securities, the issuers will now need to provide ongoing disclosures of their business activities and must also agree to compensate investors who purchased tokens if an investor elects to make a claim. It has been pointed out that becoming a registered company and providing ongoing reports is an expensive pursuit.

It has been estimated that ICOs have raised approximately $21 billion from hundreds of ICOs in 2018 alone. If these ICOs solicited to US investors or accepted their money without filing for a securities exemption, they will be in breach of US securities law. It may also be illegal for these securities to trade on an unregistered crypto exchange or marketplace.

Some time ago, Templum, a licensed alternative trading service (ATS) that services digital assets, recommended to the SEC a remediation program for ICO issuers to become compliant within existing law.

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