Cannabis Coin ‘Paragon’ Settles With the SEC—Will This Hurt Other ICOs?
Paragon has settled with the U.S. Securities and Exchange Commission after running a controversial ICO for several months. After surviving for more than a year under intense scrutiny, Paragon has agreed to register its coin as a security. The company’s CEO, Jessica VerSteeg, implies that the project is thriving once again:
“We’re excited to announce an important settlement … a very positive agreement with the [SEC] that will effectively put an end to the uncertainties of the legal status of our PRG tokens … we have been able to reach this trailblazing deal that we expect will serve as the model for compliance for ICOs going forward.”
Paragon is one of many crypto companies that are connecting blockchain technology and the cannabis industry. Based out of California, Paragon’s various components will be used to manage the cannabis supply chain, support businesses, and promote legalization. The company launched its coin and began its ICO in 2017 — and quickly brought on controversy.
The Paragon Controversy
Although Paragon aimed to circumvent some of the restrictive banking laws surrounding cannabis businesses, this was not the issue behind the coin’s controversy. Instead, the controversy sprang from the way that Paragon handled the funds it had raised.
Paragon quickly lost most of its value, allegedly due to unrelated real estate investments drawn from the funds it had raised. This made Paragon the target of class action lawsuits from investors.
However, it also put the coin under the microscope of the SEC, which considered the coin an unregistered security. Over the past few months, Paragon’s defense rested largely on the fact that the company had followed the regulations in place at the time.
Now, the coin has escaped its past: Paragon has registered as a security and will be able to fulfill its vision for the cannabis industry.
Implications For Other Coins
In addition to demanding that Paragon register as a security, the SEC has ordered Paragon to pay a $250,000 fine and refund losses to its investors. Although ICOs have come under scrutiny before, this is the first time that the SEC has imposed civil penalties on an ICO that solely violated registration procedures.
The SEC’s decision means that investors could sue ICOs and other projects if they suffer a substantial loss in their investments. The SEC also applied its ruling to another coin called Airfox, suggesting other unregistered coins could suffer similar fates in the future. Although Paragon has survived and is now thriving, some sites are predicting widespread bankruptcy for ICOs.
Securities laws have already made it difficult to run ICOs in the U.S., and it is not clear how the Paragon settlement will affect the ICO landscape. Although tougher regulations might force crypto creators to cooperate thoroughly with the SEC, those regulations could also cause ICO projects to avoid the United States in favor of more permissive countries.
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