Elizabeth Napolitano is a news reporter at CoinDesk.
The U.S. Securities and Exchange Commission (SEC) has filed a complaint against blockchain startup Dragonchain for failing to register more than $16 million in crypto asset securities offerings over the course of five years, according to a filing in the U.S. District Court for the Western District of Washington on Tuesday.
The complaint alleges CEO John Roets, along with three Dragonchain entities, violated the Securities Act by raising millions of dollars from the sale of dragon (DRGN) tokens in an initial coin offering (ICO) predominantly marketed to crypto investors in 2017. The company then funneled the money into its marketing and development campaigns, according to the SEC.
“Dragonchain undertook its distribution of DRGNs without registering its offers and sales of DRGNs with the SEC as required by the federal securities laws, and no exemption from this requirement applied,” the complaint reads.
A slew of crypto startups launched ICOs to raise money for their tokens amid the bitcoin market boom at the end of 2017, running afoul of the SEC, which considers token sales securities that should be subject to federal securities laws and information disclosure. The SEC has since brought cases against many of them.
Seattle-based Dragonchain is an enterprise blockchain startup that grew out of a platform originally developed by the Walt Disney Co. (DIS) in 2014. Since going open source in 2016 Dragonchain has faced stumbling blocks navigating regulations challenges. In 2018, the firm forced one of its affiliate projects, Norwegian startup lagon, to return ICO investors’ funds after what appeared to be concerns over the SEC’s regulatory crackdown.