SEC Powerless against Crypto Rug Pull: Airfox Kills Registered Security Token
Even though the U.S. Security Exchange Commission (SEC) has initiated regulatory actions against hundreds of crypto companies and projects, it could still fail to protect investors against bad actors and bad behaviors. This is evident in the plight of holders of Airtoken.1.) In October 2017, CarrierEQ (doing business as Airfox, based in Boston, Massachusetts) raised $15 million by selling the cryptocurrency Airtoken in an ICO. In its whitepaper, CarrierEQ stated that it planned to use Airtoken on its global mobile phone service platform.
2.) In November 2018, CarrierEQ signed an agreement with Brazilian retail conglomerate Via Varejo, in which Via Varejo agreed to issue CarrierEQ a loan in exchange a call option to purchase the supermajority of CarrierEQ stocks. Later, Via Varejo exercised its call option and acquired CarrierEQ.
3.) After its ICO, CarrierEQ came under investigation by SEC for unregistered sales of security. In early 2019, CarrierEQ and SEC reached a settlement, in which CarrierEQ agreed to (i) refund all ICO investors and (ii) register Airtoken as a security.
4.) After the acquisition by Via Varejo, CarrierEQ changed its business model. CarrierEQ developed the BanQi platform which is currently used by millions of customers in Brazil as a convenient payment/money transfer app. The company also stated that it planned to add P2P loan and banking features to the platform. Both in its updated whitepaper and in its Form 10 (filed with SEC to register Airtoken as a security), CarrierEQ stated that it planned to use Airtoken in the P2P loan platform, and that holders of Airtoken would receive a percentage of loan interest income as a reward.
5.) Based on terms of its settlement with SEC, CarrierEQ refunded many investors their ICO money. However, not all Airtoken holders received a refund, for various reasons: (i) some were unaware of the settlement and refund; (ii) others bought their tokens from exchanges and were thus ineligible for the refund; and (iii) yet others were attracted to the future prospects of Airtoken, and chose to hold on to the token instead of applying for a refund. Overall, most tokenholders would consider Airtoken a safe investment because it was now a SEC registered security. As BanQi’s business and user base expanded, investors were hopeful that their loyalty would soon be rewarded.
6.) CarrierEQ kept filing quarterly and annual reports, as well as other current reports with SEC until June 2021. It also provided investors regular updates through Telegram and other social channels. Everything seemed business as usual until on June 30, 2021, in a rather surreal rug-pull scenario, CarrierEC announced abruptly that it had ceased the development and function of Airtoken. Excerpts of the announcement are as follows (an 8K Form with SEC to the same effect):
“Ethereum-based AirToken (symbol: AIR) development has been discontinued as of June 30, 2021, ending the AirToken project per an 8-k filing with the Securities and Exchange Commission (SEC). In the absence of new laws or definitive regulatory guidelines regarding the use and transferability of AirToken, Airfox does not have the ability to proceed with implementation or utilization of the token and therefore ceases all development. As a result of the company discontinuing the development of AirTokens, AirTokens will lose their functionality in full, and it is likely that no market for AirTokens will ever be re-created and that AirTokens will not again ever be freely transferable. AirToken holders are subject to the Amended and Restated AirToken Terms & Conditions.”Investors see several major flaws in the announcement and filing of CarrierEQ:1.) First, CarrierEQ’s decision presents an effectual and actual breach of its settlement terms with SEC. SEC demanded that CarrierEQ register Airtoken so as to protect the interest of token holders. By declaring Airtoken dead, CarrierEq has defeated the very purposes SEC enforcement actions: since Airtoken has ceased to be, the settlement has become null and void; and any SEC regulatory oversight over the company has become meaningless. The actions of CarrierEQ has not only harmed the interest of investors, but also undermined the credibility of SEC.
2.) Secondly, CarrierEQ has cited a vague and frivolous reason for its decision to cease the function of Airtoken, namely, “the absence of new law and regulatory regime”. When CarrierEQ entered into a settlement with SEC, the company was well aware that such “laws and regulatory regime” were developing and emerging, and that time was required for this process. When investors put their money and trust in a company, they expect the company to work hard and generate income for them, not to quit at the first sign of difficulties or obstacles. What would happen if any company could void investors’ securities just because business is difficult? There would be total chaos in the investment and corporate world. Furthermore, it appears that CarrierEQ has made no effort to overcome the said difficulties. Prior to its June 30, 2021 announcement and filing, there had been no indication that the company had sought opinions from legal experts, nor regulatory clarity from SEC concerning the usage and transferability of Airtoken. Therefore, lack of regulatory guideline is not a valid reason to cease the function of a registered security.
Ironically, CarrierEQ implies that SEC is to be partially blamed for its failure: while “new laws” are passed by Congress; SEC plays a major role in the development of “regulatory regime”.
3.) Both the company’s announcement and 8K filing state that token holders are subject to the “Amended and Restated Airtoken Terms and Conditions”. Since these T&C were grandfathered from the T&C of the 2017 ICO, in which token buyers/holders enjoy no rights or recourses, CarrierEQ implies that investors have no means of challenging its decision. Investors disagree. The original T&C should have become invalid (i) when the company made major changes in its business model and (ii) when the company settled with SEC. CarrierEQ has never sought or obtained agreement from any investor for these T&C. Therefore, investors have every right to challenge any unilateral action of the company that harms their interests.
Shown above are a brief outline and current status of the case. Investors have written SEC to request for urgent intervention. We are eager to see how SEC would respond to the filings by CarrierEQ. While we all know that SEC launched many investigation and enforcement actions in the crypto space, it’s interesting to see if SEC regulatory actions would show some teeth when it really matters.
Please help us to spread this issue on different media channel such as Coindesk, Cointelegraph and so on, You can help us too by upvoting this reddit post https://www.reddit.com/r/AirToken/comments/odug6n/sec_powerless_against_crypto_rug_pull_airfox/?utm_source=share&utm_medium=ios_app&utm_name=iossmf or use hashtag #AirfoxScam on twitter post. I hope that Bitcointalk Community will help Airtoken investors on this fight. Thank you in behalf of the Airfox Victims.Airtoken ANN thread: https://bitcointalk.org/index.php?topic=2078932.0Victor Santos Forbes Profile(Former CEO of Airfox): https://www.forbes.com/profile/victor-santos/?sh=e794fab49549
