On Friday, November 16, the U.S. Securities and Exchange Commission announced that it had settled charges against two companies that sold digital tokens in ICOs.  Munchee, Inc. was the Commission’s first non-fraud ICO registration case and the Commission did not impose a penalty or include undertakings from Munchee, which stopped its offering before delivering any tokens and promptly returned proceeds to investors.  Friday’s cases are the first cases imposing civil penalties solely for ICO securities offering registration violations.

According to the SEC’s orders, both CarrierEQ Inc. (Airfox) and Paragon Coin Inc. conducted ICOs in 2017 after the Commission warned that ICOs can be securities offerings.  Airfox raised approximately $15 million worth of digital assets and Paragon raised approximately $12 million worth of digital assets.  Neither registered their ICOs pursuant to the federal securities laws, nor did they qualify for an exemption to the registration requirements.

The orders impose $250,000 penalties against each company and include undertakings to compensate harmed investors who purchased tokens in the illegal offerings.  The companies also will register their tokens as securities pursuant to the Securities Exchange Act of 1934 and file periodic reports with the Commission for at least one year.  Airfox and Paragon consented to the orders without admitting or denying the findings.

The SEC’s actions were a reminder that that companies that issue securities through ICOs are required to comply with existing statutes and rules governing the registration of securities.  The SEC also noted that, by providing investors who purchased securities in the ICOs with the opportunity to be reimbursed and having the issuers register their tokens with the SEC, the orders provide a model for companies that have issued tokens in ICOs and seek to comply with the federal securities laws.


David Zaslowsky has a degree in computer science and, before going to Yale Law School, was a computer programmer. He is currently the Chairman of the Litigation Department of the firm’s New York office. His practice focuses on international litigation and arbitration. He has been involved in cases in trial and appellate courts across the United States and before arbitral institutions around the world. Many of David’s cases, including some patent cases, have related to technology. Since 2008, David has been included in Chambers for his expertise in international arbitration.