Initial Coin Offerings (ICOs) are known as the Wild West of the cryptocurrency market. Though ICOs have bought billions of dollars into the pockets of aspiring startups, they lack one major element of the traditional IPOs – investor security.

The Securities and Exchange Commission is now giving signals that it wouldn’t accept anything less than proper investor security as it settled two cryptocurrency related cases on Friday. The SEC, for the first time, imposed civil penalties on companies related to their ICOs for registration violations.

If a Coin Is a Security, the SEC Will Be Involved

The SEC imposed civil penalties on the founders of crypto companies who failed to register new coin offerings this week, suggesting that the regulator is tightening its grip around the companies that violate its rules. Earlier, Jay Clayton, the SEC chair said that barring Bitcoin and Ethereum, coins will qualify as securities. In this case, the founders will have to involve the regulator.

The agency is focused on reducing the number of frauds in the industry. The recent cases settled by the SEC concern two startups, Paragon and Airfox. Each of the companies raised over $10 million in their ICOs but failed to register with the SEC. Both companies have agreed to pay the penalties. They will now register their tokens as securities and file periodic reports with the SEC. They have also agreed to return funds to the investors who could have been harmed.

Why the Cases Create a Landmark for the SEC?

This is the second settlement in last one week after SEC struck EtherDelta and said that the company was working as an unregistered exchange. In a statement, Stephanie Avakian, the SEC’s co-director of enforcement noted:

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“We have made it clear that companies that issue securities through ICOs are required to comply with existing statutes and rules governing the registration of securities. These cases tell those who are considering taking similar actions that we continue to be on the lookout for violations of the federal securities laws with respect to digital assets.”

On Thursday, Maksim Zaslavkiy pleaded guilty of securities fraud for his project “Diamond” and “REcoin.”

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