SEC orders establishment of Fair Fund for Paragon Coin victims
The United States Securities and Exchange Commission (SEC) today issued an order for the establishment of a Fair Fund that would distribute funds to the victims of Paragon.
Let’s recall that, on November 16, 2018, the SEC imposed penalties and Cease-and-Desist Order against Paragon. The regulator found that between August 2017 and October 2017, Paragon offered and sold digital tokens (PRG tokens) to be issued on a blockchain, or a distribution ledger to raise capital to develop and implement its business plan to add blockchain technology to the cannabis industry and work towards legalization of cannabis.
Paragon raised approximately $12 million worth of digital assets during the offering.
A purchaser in the offering of PRG tokens would have had a reasonable expectation of obtaining a future profit based upon Paragon’s efforts, including to develop Paragon’s “ecosystem” using the proceeds from the sale of PRG tokens, and to take steps to control and increase the value of PRG.
Paragon violated Sections 5(a) and 5(c) of the Securities Act of 1933 by offering and selling these securities without having a registration statement filed or in effect with the SEC or qualifying for exemption from registration with the SEC.
Back then, Paragon undertook to register the PRG tokens as a class of securities; to distribute a notice and claim form notifying all eligible purchasers of their potential claims under Section 12(a) of the Securities Act, including their right to sue “to recover the consideration paid for such security with interest thereon, less the amount of any income received thereon, upon the tender of such security, or for damages if [the purchaser] no longer owns the security” and informing purchasers that they may submit a written claim directly to Respondent and that such claims must be submitted within three months from the claim form deadline.
In anticipation of Paragon’s compliance with the undertakings, it was determined no further funds would be needed to fully compensate the harmed investors. Therefore, the $250,000 civil money penalty that the Commission imposed was ordered to be paid to the Commission for transfer to the general fund of the U.S. Treasury.
Paragon, however, defaulted on its obligation to perform a respondent-administered claims process under the terms of the Order, and to date, $175,000 of the civil money penalty has been paid and was sent to the Treasury in accordance with the initial agreement.
The Commission staff has determined that it is feasible to distribute the civil money penalty funds paid to date to compensate investors harmed by Paragon’s conduct. Therefore, the Commission staff has taken the appropriate steps to recall from Treasury the $175,000 paid by the firm.
Accordingly, the SEC today ordered the establishment of a Fair Fund for the $175,000 in recalled funds, and any future funds paid by the respondent, so the civil money penalty paid by the respondent can be distributed for the benefit of harmed investors.