2017 ICOs are not over yet: SEC filings against Dragonchain and its founder

The United States Securities and Exchange Commission, or SEC, has filed a complaint regarding a 2017 initial coin offering from a blockchain project originally developed by the Walt Disney Company.

In a Tuesday notice, the SEC said it had charged Dragonchain, the Dragonchain Foundation, the Dragon Company and their founder John Joseph Roets for raising $16.5 million in a presale and initial coin offering as of 2017. According to the financial regulator, Roets, Dragonchain, and the Dragonchain Foundation reportedly conducted an unregistered offering of the blockchain’s DRGN tokens in an August 2017 presale and an ICO in October and November 2017, raising $14 million. All three entities and their founder have also reportedly sold $2.5 million worth of DRGNs “to cover corporate expenses to further develop and commercialize Dragonchain technology” from 2019 to 2022.

Prior to Dragonchain’s offering, the SEC released a report in July 2017 urging companies to register with the government agency, suggesting it intended to consider many ICOs as securities offerings subject to applicable law. The commission said it would seek “permanent injunctions, bias release, civil penalties and conduct-based injunctions” against Roets and the three entities based on alleged violations of the Securities Act of 1933.

According to a May 2022 letter posted on Dragonchain’s Twitter account Tuesday, Roets knew that the SEC was planning to file charges related to the sale of unregistered securities before the statute of limitations expired. He criticized the government agency for an apparently outdated approach to regulating crypto.

“The SEC picks and chooses projects to focus on, often picking those that have the greatest chance of disrupting vested interests while giving others free passage,” Roets said. “The committee is trying to transform software technology into incompatible securities law from the 1930s. This raises the question of whether the Commission understands the technology enough to regulate it effectively.”

The Walt Disney Company began developing the Dragonchain blockchain in 2014, turning it into an open source platform and releasing it to the public in 2016. Former Disney employees later set up the Dragonchain Foundation to manage the protocol. The blockchain was still active at the time of publication, but Dragonchain has largely stayed out of the mainstream crypto news amid other burgeoning projects.

Related: US SEC Investigates Binance’s ICO

In July 2013, the SEC took its first enforcement action against a company in the crypto space, accusing an individual and company of allegedly defrauding investors in a Bitcoin (BTC) Ponzi scheme. TBEN reported in January that there were 6 cases involving cryptocurrencies initiated by the SEC between 2013 and 2017, while 14 of the 97 actions filed in 2021 were related to ICOs.

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