Order Instituting Cease-and-Desist Proceedings Pursuant to Section 8A of the Securities Act of 1933, Making Findings, and Imposing Penalties and a Cease-and-Desist Order

2018 WL 6017664 (2018)

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Order Instituting Cease-and-Desist Proceedings Pursuant to Section 8A of the Securities Act of 1933, Making Findings, and Imposing Penalties and a Cease-and-Desist Order

United States Securities and Exchange Commission
2018 WL 6017664 (2018)

  • Written by Rose VanHofwegen, JD

Facts

CarrierEQ Inc., dba AirFox (respondent) sold technology to wireless companies enabling users to earn airtime by viewing advertisements. In 2017, AirFox launched a new app allowing users to earn AirTokens issued on the Ethereum blockchain by viewing advertisements in the app. According to AirFox, AirTokens could be exchanged for free airtime from multiple prepaid cell phone providers. To raise capital, AirFox launched an initial coin offering (ICO) described in a whitepaper on its website. AirFox claimed proceeds would be used to build out an AirToken ecosystem using the expertise of its founders, who had prominent tech backgrounds. AirFox offered early buyers a discount and claimed the value would increase with demand over time as AirTokens became tradeable on digital-token-trading platforms. Purchasers reasonably expected that the value of AirTokens would rise due to AirFox’s market-expansion efforts. AirFox also used a bounty campaign awarding promoters a percentage of AirTokens sold, resulting in more than 400 people promoting the ICO in multiple languages across multiple digital platforms and social media. AirFox aimed those efforts at digital token investors, not AirToken users, who were primarily prepaid cell phone users in developing countries. The ICO raised some $15 million through more than 2,500 investors. AirFox did not register the offering and did not qualify for any Securities Act exemption from registration. The United States Securities and Exchange Commission (SEC) instituted cease-and-desist proceedings asserting that the ICO was a securities offering requiring registration. AirFox made an offer of settlement that the SEC accepted.

Rule of Law

Issue

Holding and Reasoning ()

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