The U.S. Securities and Exchange Commission (SEC) has intensified its oversight of the cryptocurrency industry, targeting unregistered initial coin offerings (ICOs) and fraudulent digital asset schemes. In its latest move, the SEC issued its first-ever civil penalties against crypto companies for failing to register their token sales, marking a significant escalation in regulatory enforcement.
SEC Penalizes Crypto Startups Over Unregistered ICOs
On Friday, the SEC announced settlements with two blockchain startups—Airfox and Paragon—both of which raised over $10 million through ICOs without proper registration. Under the agreement, the companies will:
- Pay fines imposed by the SEC
- Register their tokens as securities
- File periodic financial reports
- Offer refunds to affected investors
This move underscores the agency’s firm stance that ICOs fall under securities laws and must comply with existing regulations.
Just a week prior, the SEC made another major move by charging EtherDelta, a decentralized exchange, for operating without registration. This was the first enforcement action of its kind against a crypto trading platform, signaling a broader crackdown on digital asset marketplaces.
A Warning to Crypto Founders
The SEC has long warned that most cryptocurrencies—except Bitcoin and Ethereum—are classified as securities. SEC Enforcement Co-Director Stephanie Avakian emphasized that companies issuing digital tokens must follow securities laws:
“These cases tell those who are considering taking similar actions that we continue to be on the lookout for violations of federal securities laws with respect to digital assets.”
With these penalties, the SEC has sent a clear message to the crypto industry: regulatory compliance is non-negotiable.
Crypto Fraud Crackdown: Brooklyn Businessman Pleads Guilty
In a separate but related case, Brooklyn businessman Maksim Zaslavkiy pleaded guilty to securities fraud conspiracy. Zaslavkiy misled investors into buying digital tokens for two ICO projects, “REcoin” and “Diamond,” falsely claiming they were backed by real estate and diamonds.
In reality, there was no blockchain technology behind the tokens, nor any actual assets. Federal prosecutors exposed the scheme, with U.S. Attorney Richard Donoghue stating:
“The calculated lies of Zaslavkiy and others led unsuspecting investors to buy worthless certificates. We will continue to aggressively prosecute those who exploit and defraud investors.”
Zaslavkiy had previously tried to dismiss the charges, arguing that existing crypto laws were “unconstitutionally vague.” However, a Brooklyn judge ruled that the case could proceed under current securities laws, setting a legal precedent for future crypto fraud prosecutions.
The ICO Boom and Regulatory Challenges
The ICO frenzy in 2017 and 2018 saw billions of dollars raised by blockchain startups, often without clear regulations or investor protections. Some projects delivered real products, while others turned out to be scams—or, in some cases, joke cryptocurrencies like Dogecoin, which started as a meme.
According to estimates, ICO fundraising in 2018 alone surpassed $9 billion. However, the SEC has remained firm in its stance: most ICOs constitute securities, and the agency has no intention of changing the definition of a security to accommodate cryptocurrencies.
SEC Chairman Jay Clayton reiterated this earlier in the year:
“If it’s a security, we’re regulating it. We’ve been doing this a long time—there’s no need to change the definition.”
What’s Next for Crypto Regulation?
With regulatory scrutiny increasing, crypto startups must now navigate a stricter legal environment. The SEC’s latest actions make it clear that digital asset projects will be held to the same standards as traditional securities.
For investors, this crackdown serves as a warning—due diligence is critical when investing in ICOs and new cryptocurrencies. The era of unregulated token sales may be coming to an end.