In what is possibly the first ICO to be stopped in its tracks after being contacted by the Securities and Exchange Commission (SEC), Protostarr shut shop on Tuesday.
The token was created to support rising internet celebrities on live and video streaming platforms like Twitch and YouTube, in business model whereby fans purchased the Protostarr token for direct access via streaming services to their favourite celebrities .
It had its ICO in August and managed to raise 119.5 ether, c. $47,000 at the time of writing.
In a press release, the company stated that they have decided to cease further operations. It also mentioned that the Ethereum that they have collected in their crowdsale that was launched on 13 August 2017 will be refunded in entirety tall investors.
Failing Due Diligence
The statement further read that they were excited to be a part of this emerging space of content creation and its method of funding. Unfortunately, as a start-up, it claimed not to have the required resources to both develop its decentralised app whilst challenging the investigation of its ICO by the SEC.
When contacted over the phone, Joshua Gilson, the Chief Executive said that the investigators from SEC expected him to give honest information about the company. They also mentioned that he could be prosecuted if found to be providing false information. At this point, he realised that the company should probably consult a lawyer and proceeded with a decision to cease operations.
Protostarr, not having sought out legal input before its ICO, has found that this lack of due diligence has effectively put an end to the project – at least for now.
ICOs are relatively a new concept. Many in the field are acutely aware that the way in which regulations could be applied to the tokens are still not finalised. The Protostarr example should act as encouragement for other ICOs to follow due legal diligence.
Unclear Legal Framework
The regulations, however, are still not clear. When the SEC released its first and official public ICO-related statement in July, it related to crypto-coin DAO token, a decentralised venture fund, whose token the SEC was to classify as a security .
This report confirmed what many industry insiders already believed: that only some and not all coins are effectively structured as securities. These will need to register with the SEC. After this report, Harbour, another crypto-asset closed of its own volition.