Debra Borchardt
It’s rare that ripped-off investors ever get any of their money back, but in the case of Paragon Coin, a small fund was set up for that purpose. Last week the Securities and Exchange Commission (SEC) announced that it had approved a Fair Fund to be established and that harmed investors could get some money returned to them. However, the amount in the fund only totals $167,665.15, while Paragon Coin raised $12 million.
Back Story
From August 2017 through October 2017, Paragon offered and sold digital tokens (“PRG” or “PRG tokens”) to be issued on a blockchain or a distributed ledger. Paragon conducted the offering of PRG tokens to raise capital to develop and implement its business plan to add blockchain technology to the cannabis industry and work towards the legalization of cannabis. In connection with the offering, Paragon described the way in which PRG tokens would increase in value as a result of Paragon’s efforts and stated that PRG tokens would be traded on secondary markets. Paragon raised approximately $12 million worth of digital assets during the offering. According to the SEC, Paragon did not register the offering pursuant to the federal securities laws, nor did it attempt to qualify for an exemption to the registration requirements.
Settlement
In 2018, Green Market Report reported that Paragon faced a $250,000 penalty and must compensate the investors. They were told to register the tokens as securities and file periodic reports with the SEC. “By providing investors who purchased securities in these ICOs with the opportunity to be reimbursed and having the issuers register their tokens with the SEC, these orders provide a model for companies that have issued tokens in ICOs and seek to comply with the federal securities laws,” said Steven Peikin, Co-Director of the SEC’s Enforcement Division.
At the time Paragon’s CEO Jessica Ver Steeg would not comment on the settlement. However, it was well known that the money raised from the ICO was used to acquire a building in order to create a co-working space for cannabis startups in Los Angeles, called Paragon Space.
On April 9, 2021, the Commission issued an order establishing the Fair Fund, pursuant to Section 308(a) of the Sarbanes-Oxley Act of 2002, for the $175,000 in recalled funds and any future funds paid by the Respondent pursuant to the Order, so the civil money penalty paid by Respondent can be distributed for the benefit of harmed investors.
Paragon Coin IS a Security
Also at the time, Paragon faced a lawsuit not long after the ICO (initial coin offering). The lawsuit stated that approximately between August 15, 2017, through October 16, 2017, the defendants raised at least $70 million in digital cryptocurrencies by offering and selling unregistered securities in direct violation of the Securities Act. It also stated that on November 2, 2017, Paragon ICO investors received an email updating them that during the Paragon ICO “crowd sale” they had collected 533 BTC and 8,092 ETH— worth approximately $7.3 million and $10.2 million, respectively, as of January 12, 2018. Unfortunately, these amounts did not include any of the cryptocurrencies they collected during the Paragon ICO “presale.”
At the time Ver Steeg said, “Paragon is dedicated to staying compliant with all applicable laws, and endeavored to do so throughout the entire ICO process. As U.S. Securities and Exchange Commission Chairman Jay Clayton recently stated, “there are cryptocurrencies that do not appear to be securities,” and whether an initial coin offering implicates the securities laws “depends on the facts.” We are confident that the ParagonCoin token is not a security and can prove so in a court of law.” Apparently, the SEC disagreed.
By April 2020, Paragon claimed bankruptcy and wrote, “We never considered ourselves experts in the matter of US securities, therefore we sought out the guidance of highly recommended lawyers that were supposed to help, unfortunately they misguided and failed us.”
VerSteeg and her partner in crime husband Egor Lavrov took off to Europe when the whole plan went south. VerSteeg–a former model with a heavy social media presence, stopped posting after 2019 and has dropped out of sight. Lavrov is a Russian who in the past supported the campaigns of Vladimir Putin and has also disappeared from the public.
