The SEC has filed charges against Dragonchain for allegedly raising more than $16 million in an offering of unregistered “crypto asset” securities — a significant sign that the regulator is broadening its anti-cryptocurrency crusade.
The SEC has filed a lawsuit against Dragonchain.
The SEC filed a complaint against Dragonchain founder and CEO John Joseph Roets on Tuesday for failing to register a $16.5 million crypto asset securities offering. The SEC is also suing three companies connected to Roers and Dragonchain: Dragonchain Foundation, Dragonchain Inc., and The Dragon Company.
The complaint, filed in the United States District Court for the Western District of Washington, claims that the defendants made $14 million from the sale of Dragon tokens (DRGN) in a 2017 initial coin offering (ICO) marketed to approximately 5,000 investors worldwide.
An ICO is a funding model used by blockchain startups to quickly raise capital. The company invites investors to participate in a discounted presale of its newly created token or currency before it is released to the public. The SEC also claims that all three entities and the founder sold an additional $2.5 million in DRGNs between 2019 and 2022 to cover business expenses and market Dragonchain technology.
Roets claims he has a “very strong case” against them.
The Dragonchain chief architect has publicly condemned the SEC’s questionable behavior. SEC had previously informed Roets of the investigation, and in a letter posted on Tuesday, he addressed the charges in advance.
He promised to present a detailed argument as to why the United States’ top financial cop should not charge the named defendants with violating securities laws.
“The SEC is picking and choosing which projects to target, often focusing on those with the greatest potential to disrupt incumbent interests while giving others a pass,” Roets asserted. “The commission is attempting to cram software technology into antiquated securities law from the 1930s.” This raises the question of whether the Commission understands technology well enough to regulate it effectively.”
Roets considers himself to have a “very strong case.” It remains to be seen whether Seattle-based Dragonchain, like Ripple, will mount a ferocious legal defense against the SEC rather than settle.
For years, the SEC has failed to guide the security status of many cryptocurrencies, despite persistently arguing that crypto assets should be subject to securities regulations. Instead, the agency has taken a “regulation by enforcement” approach, which has enraged many crypto enthusiasts. The SEC declared last month that nine of the cryptocurrencies listed by Coinbase were, in fact, securities. The agency is also investigating whether the cryptocurrency exchange allows Americans to trade tokens that should have been registered as securities.