The regulatory uncertainty seems to be arriving late to the Washington State

 In what looks like the latest sign concerns are having effects on Initial Coin Offerings (ICOs) broadly, Seattle-based business Dragonchain is forcing one of its affiliate projects, the one known as Norwegian startup Iagon, to return finances that it raised from investors back in April – and it is presently doubtful why.

1.3$ million in Ethereum

In fact, on the 28th of April, the day its presale become scheduled to end, Iagon published a Medium post which explained to buyers that the sale had been paused. What is notable is that it was not the idea of lagon; the company had lately joined an incubator which was sponsored by Dragonchain, and it turned out that Dragonchain, which is an enterprise blockchain startup spun out of Disney, introduced the hammer down.

But even Navjit Dhaliwal, lagon CEO, said that he could not entirely account for the turn of events as the ICO, which had raised about $1.3 million in Ethereum during that period, was canceled.

Even though he thinks it has something to do with regulation, especially a possible stance from the SEC, he also was not exactly forthcoming with a definite answer. He told CoinDesk:

“It is my understanding that Dragonchain is continuing to tread cautiously as the SEC has actually been investigating all of the ICO and blockchain projects which have arisen.”

He continued his statements by saying that lagon met with Dragonchain on the 30th of April to get more details, but the answers were still indirect. He explained:

“According to the admin on a public Dragonchain Telegram channel, adding a bit more to the mystery, the lagon sale was canceled per legal guidance.”

The admin continued, telling the members to expect a statement from the Dragonchain CEO about its course of action going forward.

Still, there can actually be a broader problem at play. The lagon token sale was one part of the program that Dragon chain created after it raised $13.7 million in its own ICO in November. Five token issuers, which included lagon, have been incubated by the company so far, and pre-sales have not gone very well.

The investors at the Look Lateral token presale that ran on Dragonchain later in 2018 have been looking for some refunds, first of all as the team has not launched its scheduled sale, based on posts in another Telegram channel.

“Legal Advice”

Another issue that was using the platform LifeID has canceled its presale based on some “legal advice.”

Each of these things looks like pointing to a regulatory uncertainty around crypto tokens, as having a substantial effect on the industry which has been built around this new way to raise capital.

As such, the future of the incubator of Dragonchain is likewise uncertain. Several Telegram channel posts indicate that the nursery has been suspended, but there are no official announcements made.

Dragonchain has still not responded to the repeated requests for comment.

On the whole, lagon, which planned to run a public sale with a cap of $77 million starting on the 10th of May, is now scrambling to revise the timeline and find a new partner platform to execute another presale and a later public sale.

For some of them, the question could be: why did it take so long for Dragonchain to act on rumors that the SEC and some other regulators were investigating the space?

As expected, a lot of them started predicting that the SEC would make a move at the start of 2018, and in March, it has been reported that an SEC crackdown was on its way. SEC subpoenas started arriving, and government officials begin hinting that guidance was imminent and a handful of token entrepreneurs mulling over ICOs and airdrops also started pulling back.

But, Dragonchain went on with the lagon partnership, whereby the lagon token would be limited to holders of the “dragon” tokes of Dragonchain.

Lagon had wanted to collaborate with Dragonchain since the company has a much higher-profile and broader community than the Norwegian startup.

But, Dhaliwal continued:

“It looks like Dragonchain has made several changes to their legal team. It appears as though the new Dragonchain legal counsel members have different views regarding the incubator program or the intricacies of the presale.”

It is still not much known about the particular reasons why the new legal counsel of Dragonchain is uneasy with the sale, and Dhaliwal wound not confirm whether or not unaccredited investors in the U.S. were excluded.

Only permitting accredited investors to buy into a token sale has become some standard practice for ICO issuers selling into the U.S. market, primarily as they are typically using a Regulation D exemption, under the Securities Act, not to be classified as a security.

Speaking about the requirements of Reg D, Joshua Ashley Klayman co-chair of Morrison & Foerster’s Blockchain + Smart Contracts Group has said:

“One of those requirements is that the token seller takes some reasonable steps to verify the accredited investor status of purchasers that are US persons.”

Klayman, who is the chair of the Wall Street Blockchain Alliance Legal Working Group, has continued saying:

“In my personal experience, many token sellers report engaging several ‘permitted third-party verifiers’ to confirm that such purchasers are, in fact, accredited investors.”

Are there some new rules needed?

As the regulatory air begins clearing, though, some think that this situation is going to become all the more common.

For example, Mason Borda posted a tweet in which he says that the lagon refund is likely going to be a part of a future trend whereby ICO issuers who have missed a part of the compliance flow would be “cleaning up.”

While it seems like there is an increase in the interest in designing crypto tokens, as well as sales to fit under existing regulatory rules, other companies are pushing for an entirely different set of rules to be crafted for the industry.

Dragon chain also appears to be interested in the later, as it wrote a community update, saying:

“It should be noted that until a regulatory framework for utility tokens is defined, ‘compliance’ actually seems to be moving the target. We are always going to strive to fulfill our due diligence to not just position ourselves as the business blockchain solution, but more significantly, to protect all dragon holders – away.”

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