SEC Orders Airfox and Paragon to Return Millions to Investors on ICO Registration Violations

The U.S. Securities and Exchange Commission (SEC) has settled charges against two cryptocurrency companies which were accused of violating ICO securities offering registration rules.Both firms, Carrier EQ (Airfox) and Paragon Coin sold digital tokens in ICOs in 2017 after the regulator’s official stance on the ICO. Some crypto fundraisers can be considered securities offerings, according to its DAO Report of Investigation.Airfox and Paragon Settle Charges with SEC for ICO Registration Violations, $250 in PenaltiesAs part of the settlement, both cryptocurrency companies will return funds to harmed investors, register the tokens as securities, file periodic reports with the Commission, and pay $250,000 in penalties.Neither one has admitted or denied the findings made by the SEC, but they have consented to the orders.Carrier EQ (Airfox), a firm which facilitates the transfer of mobile airtime, data and currency, as well as payments for goods and services, raised $15 million from selling over a million AirTokens on October 2017.The company had closed its $6.5 million ICO pre-sale weeks earlier than scheduled. The Boston-based blockchain company intended to use the money to develop a micro-loans program and expand abroad to emerging markets.Paragon Coin, which focuses its blockchain platform on the cannabis industry, raised approximately $12 million worth of digital assets to work toward legalization of cannabis and implement its business plan.Related Reading: Crypto Week in Review: SEC Fines EtherDelta, Binance to Attract InstitutionsThe funds would be used to make supply chains more efficient and manageable, increase transparency regarding the origin of seeds and produces, as well as allowing payments between different parties.These are the Commission’s first cases imposing civil penalties solely for ICO securities offering registration violations. Airfox and Paragon Coin failed to register their crypto fundraisers pursuant to the federal securities laws nor did they qualify for an exemption to the registration requirements, Stephanie Avakian, co-director of the SEC’s Enforcement Division, said in a statement.“We have made it clear that companies that issue securities through ICOs are required to comply with existing statutes and rules governing the registration of securities. These cases tell those who are considering taking similar actions that we continue to be on the lookout for violations of the federal securities laws with respect to digital assets.”Munchee was the Commission’s first non-fraud ICO registration case. The visual review and social networking app for food failed to register with the financial watchdog, but stopped its offering before delivering any tokens and promptly returned proceeds to investors.The company was seeking to raise up to $15 million from thousands of investors ‎to develop an iPhone app for restaurant meal reviews. The SEC did not impose a penalty or include undertakings from Munchee.Featured image from Shutterstock.

Regulations Roundup: Chinese Mining Farms Undergo Tax Inspection, Michigan Bans Campaign Donations in Cryptocurrency

Regulations Roundup: Chinese Mining Farms Undergo Tax Inspection, Michigan Bans Campaign Donations in Cryptocurrency

Regulation

In recent regulatory news, we report on an authorized mining company in China that has had its operations temporarily halted for tax inspection and implementation of real-name registration processes. We also look at the Michigan Secretary of State’s ban on crypto-based political donations, as well as the recent certification of X8’s stablecoin for Shariah compliance. In addition, we focus on the operator of a fraudulent cryptocurrency scheme who has been punished for misappropriating $601,000 in BTC and LTC from his employer.

Also Read: President of Marshall Islands Challenged Over Cryptocurrency Plan

Chinese Mining Farms Suspended

Regulations Roundup: Chinese Mining Farms Undergo Tax Inspection, Michigan Bans Campaign Donations in CryptocurrencyAccording to a statement published by an unidentified cryptocurrency mining company, Chinese state agencies have ordered the suspension of its mining farms in southwestern Guizhou Province and the Xinjiang Uyghur Autonomous Region for tax inspections and to implement real-name registration processes.

“According to the needs of the public security department’s network information security work, in the future, our company will implement higher standards for the company’s business real-name system according to the work needs of the public security department,” the anonymous company said. “For customers with the latest standard real-name systems, the data center will have to suspend reloading, restarting, moving in and out, etc.”

Michigan Secretary of State Says ‘No’ to Crypto

Regulations Roundup: Chinese Mining Farms Undergo Tax Inspection, Michigan Bans Campaign Donations in CryptocurrencyIn a letter addressed to William Baker, a recent candidate for the Michigan state legislature, the office of the Michigan Secretary of State has formally barred cryptocurrency donations to political campaigns.

Baker, who lost his bid in the state’s Nov. 6 election, had previously sought clarification on how the value of donations in the form of cryptocurrencies should be recorded. He also asked whether virtual currency exchanges would qualify as valid secondary depositories for the storage of crypto assets.

Baker asserted that “it is self-evident that digital currency is a valid way to receive political contributions.” However, the state secretary’s office responded by stating that “the law does not authorize such a vehicle, and the department has never determined that digital currencies are a valid way to receive political contributions.”

The letter also highlighted concerns pertaining to the price volatility of cryptocurrencies. “As with stocks and commodities, bitcoin’s worth fluctuates daily,” the office said. “There is no way to ascertain the precise monetary value of one bitcoin on any particular day.”

The Michigan Secretary of State raised additional objections to the use of cryptocurrencies as donations. In the letter, the office added that state legislation also “requires that committees deposit funds in an account in a financial institution, which is not an option for cryptocurrency.”

X8 Stablecoin Certified as Shariah Compliant

Regulations Roundup: Chinese Mining Farms Undergo Tax Inspection, Michigan Bans Campaign Donations in CryptocurrencyX8C, the stablecoin issued by Swiss fintech company X8 AG, has obtained a certificate showing that its stablecoin is compliant with Shariah law. It received the certification from the Shariyah Review Bureau, an Islamic advisory firm licensed by the Central Bank of Bahrain.

Francesca Greco, director and co-founder of X8, announced that the company will soon establish a regional office in the Middle East. Greco also indicated that X8 plans to launch a Shariah-compliant virtual currency exchange, adding that the company has already met with representatives of exchanges based in Abu Dhabi, Dubai and Bahrain.

“The Gulf region is a really good place for financial technology companies, because they all want to become hubs for fintech,” Greco said.

CFTC Fines Crypto Scheme Operator Over $1.14M

Regulations Roundup: Chinese Mining Farms Undergo Tax Inspection, Michigan Bans Campaign Donations in CryptocurrencyThe U.S. Commodity Futures Trading Commission (CFTC) has ordered Joseph Kim, a resident of Phoenix, to pay more than $1.14 million for operating a fraudulent cryptocurrency scheme. Kim was also sentenced to 15 months in prison on “related criminal charges” filed in the U.S. District Court for the Northern District of Illinois. According to the court order, Kim pleaded guilty to “orchestrating a fraudulent Bitcoin and Litecoin scheme that led to more than $1 million in losses.”

Kim was found to have misappropriated $601,000 worth of BTC and LTC from his employer — described as “a Chicago-based proprietary trading firm” — before attempting to fabricate security-related issues to obfuscate the misappropriation of funds. Despite this, the company fired Kim in November 2017 after the theft of the cryptocurrency was discovered.

Between December 2017 and March 2018, Kim then sought to repay his former employer through profits that he had generated through the operation of a cryptocurrency trading scheme. According to the CFTC, he “falsely told customers that he would invest their funds in a low-risk virtual currency arbitrage strategy, when, in fact, Kim made high-risk, directional bets on the movement of virtual currencies that resulted in Kim losing all $545,000 of his customers’ funds.”

Do you think Chinese miners will report the temporary suspension of their operations for tax inspection and real-name registration? Share your thoughts in the comments section below!


Images courtesy of Shutterstock


At Bitcoin.com there’s a bunch of free helpful services. For instance, have you seen our Tools page? You can even lookup the exchange rate for a transaction in the past. Or calculate the value of your current holdings. Or create a paper wallet. And much more.

Cryptocurrency Trader Ordered to 15 Months in Jail and $1.1m Fine for Bitcoin Fraud

The US Commodity Futures Trading Commission (CFTC) issued an Order against a cryptocurrency trader, requiring him to pay upwards of $1.1 million and to serve 15 months in prison over a fraudulent Bitcoin and Litecoin Scheme.  


Cryptocurrency Trades Gone Wrong

The CFTC Order, issued on November 9th, specifies that cryptocurrency trader Joseph Kim had misappropriated some $600,000 worth of Bitcoin and Litecoin from his former employer – a trading company based in Chicago. The ex-employee was able to do so through a range of transfers between his company’s accounts and his personal ones, misleading clients that these transfers were necessary because of “security issues.”

The Commission also finds that Kim’s former employer discovered his wrongdoing and terminated him after suffering a loss of $601,000.

However, after his termination, Kim began soliciting funds from individuals, purportedly hoping that he would be able to use the trading profits to repay the company’s losses. It is found that between or about December 2017 and March 2018, the trader managed to obtain and, eventually lose a total of $545,000 of his customers’ funds. The trader concealed the losses by sending untrue account statements which reflected profitable trading.

Kim pleaded guilty and he has been ordered to repay the funds he lost as a result of his actions, while also serving 15 months in prison.

CFTC’s Mission to Halt Cryptocurrency Fraud

Commenting on the above Order, James McDonald, Director of Enforcement at the CFTC noted:

Today’s Order stands as yet another in the string of cases showing the CFTC’s commitment to actively police the virtual currency markets and protect the public interest.  In addition, the criminal indictment and sentence reaffirms the CFTC’s commitment to working in parallel with our partners at the Department of Justice to root out misconduct in these markets.  My thanks to U.S. Attorney Lausch and his staff, as well as the Federal Bureau of Investigation, for their assistance in this case.

Indeed, the commission has been fairly proactive in its fight against crypto-related fraud. Earlier in September, Live Bitcoin News reported that the CFTC has charged two individuals with multiple counts of criminal offenses for attempting to steal bitcoins from their customers. The Commission also cracked down on another Bitcoin Ponzi scheme.

It’s also worth noting that despite its active position on the matter, the Commission’s Chairman J. Christopher Giancarlo has been known to advocate for a “do no harm” approach to regulating cryptocurrencies.

What do you think of the CFTC’s Order against Joseph Kim? Don’t hesitate to let us know in the comments below!


Images courtesy of ShutterStock

Tags: , , , , , ,