Dragonchain, a cryptocurrency company based in Bellevue, Washington, was sued Tuesday by the Securities and Exchange Commission on allegations that it engaged in illegal sales of unregistered securities through its initial coin offering in 2017 and subsequent sales of its DRGN tokens totaling 16.5 million dollars.
The company, founded in 2017 by a former Walt Disney Co. blockchain architect, has denied the allegations in previous statements anticipating the government’s lawsuit.
It is the latest cryptocurrency company to face such allegations from the SEC, which claims that certain cryptoassets fit the legal definition of securities, requiring greater levels of federal regulation and scrutiny than commodities do.
Dragonchain’s founder and CEO, John Joseph “Joe” Roets, is named as a defendant in the suit along with three affiliated companies and organizations: Dragonchain Inc., Dragonchain Foundation and The Dragon Co.
“Because Dragonchain never filed a registration statement for its offering and sale of DRGNs, it never provided investors with the material information that other issuers include in such statements when soliciting public investments,” the SEC alleges in the 17-page complaint, filed Tuesday in U.S. District Court in Seattle.
That allowed the company to operate in “an information vacuum,” selling tokens to a market that only had the information Dragonchain chose to share about DRGNs, the lawsuit said.
The suit didn’t surprise Dragonchain. After more than four years of communication with the company, the SEC informed Dragonchain on April 27 that investigators would recommend pursuing Dragonchain for allegedly selling unregistered securities, according to a May 24 post by Roets that linked to a lengthy preemptive defense.
This defense said in part: “Purchasers of the DRGN Micro-License knowingly and legally acknowledged that the DRGN was a software license to be used on the Dragonchain Platform and did not in any way represent shared equity or ownership in Dragonchain, the Dragonchain Platform, or any related IP.”
Roets also wrote at the time, “We are confident that we have a very strong case against such charges should they be brought. We are also sure that this will not affect ongoing operations or other project plans.“
GeekWire has reached out to Roets for comment on the SEC filing.
After the SEC lawsuit was filed, news site Crypto Briefing published an investigative report on Dragonchain on Tuesday afternoon based on interviews with former employees and others connected to the company.
The push to treat certain crypto assets as securities also led the SEC to file a lawsuit in July against a former Seattle-based Coinbase employee who was charged separately with cryptocurrency insider trading. Many involved in the crypto industry argue that such assets should be treated as commodities, not securities.
