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The SEC said that Dragonchain continued with the sale of the DRGN tokens even after their warning about security tokens.
On Tuesday, August 16, the US Securities and Exchange Commission (SEC) filed a lawsuit against all entities related to Dragonchain. This lawsuit charges Dragonchain for an initial coin offering (ICO) conducted back in 2017 which netted $16.5 million at that time.
The SEC lawsuit also names Dragonchain founder John Joseph Roets for allegedly conducting an unregistered crypto offering. The US securities regulator registered this complaint in the U.S. District Court for the Western District of Washington on Tuesday.
As per the SEC, Roets and his three entities – Dragonchain Inc., Dragonchain Foundation, and the Dragon Company – “illegally raised” $16.5 million through the sale of its DRGN tokens. As a result, the SEC has slapped a civil monetary penalty and demanded disgorgement of the proceeds.
The presale of the DRGN tokens took place immediately after the SEC released its DAO report in July 2017. This report was the watershed moment for the crypto industry as it meant that the SEC will treat all future ICOs as security token offerings. The recent report from the SEC notes:
“The SEC alleges that in 2017, Roets, Dragonchain, and the Foundation conducted an unregistered offering of Dragon tokens (“DRGN”) in two phases: (1) a discounted “presale” in August 2017 to members of a crypto investment club, and (2) an initial coin offering (“ICO”) in October and November 2017 marketed predominately to crypto investors. Through this offering, the defendants allegedly raised approximately $14 million from approximately 5,000 investors around the world, including the United States”.
Further Charges by the SEC
The SEC noted that the defendants marketed their security token offerings to crypto investors. They further publicly discussed DRGN’s investment value, pricing, and “listing” on trading platforms, among other things.
The SEC further notes that between 2019-2022, Roets and the Dragonchain team sold $2.5 million worth of DRGN tokens to cover their business operation costs. In the meanwhile, they also continued to develop and market Dragonchain technology.
As a result, the SEC has charged the defendants with violating Sections 5(a) and (c) of the Securities Act of 1933 (“Securities Act”). During its formative year of 2014, Roets and his team described Dragonchain as a hybrid blockchain for “solving business problems at an enterprise scale”.