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SEC files suit against Dragonchain and its founder

The United States Securities and Exchange Commission, or SEC, has filed a complaint related to a 2017 initial coin offering (ICO) 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 founder John Joseph Roets for raising $16.5 million in a presale and initial coin offering in 2017. According to the financial regulator, Roets, Dragonchain and the Dragonchain Foundation allegedly conducted an unregistered offering of the blockchain’s DRGN tokens in an August 2017 presale and an October and November 2017 ICO, raising $14 million. All three entities and their founder also allegedly sold $2.5 million worth of DRGNs “to cover business expenditures to further develop and market Dragonchain technology” from 2019 to 2022.

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

According to a letter from May 2022 posted to Dragonchain’s Twitter account on Tuesday, Roets knew the SEC intended to pursue charges related to the sale of unregistered securities before the statute of limitations expired. He criticized the government agency for having a seemingly outdated approach to regulating crypto.

“The SEC is picking and choosing projects to target, often singling out the ones with the biggest opportunity to disrupt incumbent interests, while giving a free pass to others,” said Roets. “The commission is trying to shoehorn software technology into incompatible securities law from the 1930’s. This calls into question whether the Commission understands the technology enough to effectively regulate it.”

The Walt Disney Company started developing the Dragonchain blockchain in 2014, making it an open source platform and releasing it to the public in 2016. Former Disney employees later established the Dragonchain Foundation to manage the protocol. The blockchain was still active at the time of publication, but Dragonchain has largely stayed out of 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 firm in the crypto space, charging an individual and business with allegedly defrauding investors in a Ponzi scheme involving Bitcoin (BTC). Cointelegraph reported in January that there were six cases involving cryptocurrencies initiated by the SEC between 2013 and 2017, while 14 of 97 actions brought in 2021 were related to ICOs.