Blockchain and crypto projects that raised millions of dollars via tokenized crowdfunding means are now lining up to return their capital to their original investors. Because apparently, they were not allowed to raise funds in the first place.

The Securities and Exchange Commission (SEC) has gone after these startups for reportedly violating existing securities laws. The US regulator found irregularities in the way companies raised funds, mainly by approaching average Joes instead of sophisticated, accredited investors to raise capital. As a result, the commission issued heavy penalties against the accused blockchain projects, which include the order of returning funds to the investors.

Even Big Crypto Projects Struggling

It could be one of the reasons why even the most genuine startups could see massive declines in their token values. The funds that backed these unregistered assets may no longer be there to return them. Even the hedge fund managers that incorporated them into their crypto portfolios at the first place are now doubtful of their future.

Dan Morehead and Joey Krug, co-chief investment officers of Pantera Capital Management, revealed in their newsletter that their fund invested in 25% of the blockchain projects that violated the US securities law, adding that they may have to refund their backers.

“If any of these projects are deemed to be securities, the SEC’s position could adversely affect them,” they wrote. “Of these projects, about a third (approximately 10 percent of the portfolio) is live and functional and, while they could technically continue without further development, ending development would hinder their progress.”

The funds could also end up paying the bills for offering unregistered securities in their portfolio. In such a scenario, Pantera, which posted gains of 60% amid a crypto crash, therefore may need to shell out a considerable portion of their accumulation as a refund.

An instance that guides to such a scenario is CoinAlpha Advisors LLC. The fund manager last week was slapped with a $50,000 fine by the SEC after the regulator caught it selling unregistered securities.

Regulatory Backlog

The situation related to the future of the US ICO industry is likely to get worse. It would be difficult to predict the coins that have made into the SEC’s hitlist, but the growing scrutiny would deter new startups to launch businesses in the grey area of cryptos. That said, the market could be eyeing further losses as the new year approached, indicating a head down towards the best-possible bottom.

Nevertheless, a clear washout of unregistered ICOs would eventually make space for a new wave of startups. With accredited investors taking them for a ride, there would be fewer cases of frauds that otherwise had hampered the growth of the ICO sector, anyway. A crash followed by a stable uptrend is the best outcome of all this.

Source: Newsbtc.com