SEC sues Dragonchain ICO organizers for $14 million

SEC charged John Joseph Roets and related companies with an unregistered offer of securities valued at $16.5 million during the initial coin offering (ICO) and subsequent token sales.

The regulator alleges that in 2017 Roets, Dragonchain Inc, Dragonchain Foundation and Dragon Company conducted an unregistered Dragon (DRGN) coin offering in two stages:

• a presale in August for members of an investment club;
• a public sale in October–November.

According to the complaint, the ICO raised $14 million from about 5,000 investors worldwide, including the United States.

From 2019 to 2022, Roets and his companies sold DRGN for another $2.5 million. The funds were raised to “cover business expenses, as well as further development and marketing of Dragonchain’s technology.” Some of the sales occurred after the SEC classified the tokens as securities.

The Commission sought injunctions against the defendants’ conduct, disgorgement of investors’ losses with interest, and civil penalties.

DRGN price peaked at $5.11 in January 2018 (CoinMarketCap). At the time of writing the token trades around $0.02. The asset’s market cap is $8.5 million, with a 24-hour trading volume of $235,115.

“Even though Dragonchain is a zombie coin from 2017, such cases allow the SEC to set a precedent that can be used to regulate the broader space. So this isn’t really about this particular token,” commented Bill Hughes, ConsenSys’ senior counsel.

Even though Dragonchain is a 2017 zombie coin, these cases allow the SEC to develop precedent that can be used to regulate the broader space. So this isn’t really about this particular token necessarily. https://t.co/WyRTHdR4Ie

— wchughes.eth 🦊 (@BillHughesDC) August 16, 2022

As reported in 2021 the SEC opposed the creation of a ‘safe harbour’ that would shield ICO projects from the Commission’s accountability.

The idea of introducing three-year regulatory holidays for token-sale startups was proposed by SEC Commissioner Hester Peirce in 2020.

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