Protostarr Shuts Down After Contact From SEC
On August 24, 2017, Protostarr, the internet celebrity crowdfunding platform, was contacted by the SEC. Protostarr then consulted with attorneys, and thereafter decided to cease operations.
Per Protostarr’s press release: “we were contacted by the United States Security and Exchange Commission regarding the initial coin offering of Protostarr tokens to fund the development of our Ethereum decentralized application. After consultation with multiple lawyers, we have decided to cease further operations and refund Ethereum collected in our crowdsale that began on August 13, 2017.”
The Protostarr token offering had raised 119.5 Ether, or nearly $50,000. The company will start issuing refunds on September 2, 2017, for every incoming crowdsale transaction made before the refund date.
About a month ago, the SEC issued a report concerning The DAO, concluding that The DAO tokens were securities. Many in the crytpocommunity immediately started questioning the future of token offerings. Protostarr’s closure is the latest sign that the token offering phenomena may be slowing down. The SEC has not issued any statement about Protostarr, and Protostarr’s press release did not explain what the federal regulators said, but safe to say Protostarr’s token offering was probably a security and the token offering was conducted in violation of the securities laws.
Protostarr explained that as a startup it does not have sufficient resources to challenge the SEC: “Like many of our supporters , we were excited to be an innovative force in the emerging space of content creation and its funding. Unfortunately, as a startup, we do not have the necessary resources to both develop our DApp and challenge the SEC’s investigation regarding our ICO and its interpretation under US securities law.”
Protostarr chief executive, Joshua Gilson, further explained on a popular online forum: “Thanks for understanding. We are just working on making sure all refunds are handled properly so no one loses any money. At least ETH is worth more now than it was during the campaign so everyone is getting more value back than they donated. It is unfortunate though. We feel we had a novel idea that can help a lot of people, but because ICO’s are now on the SEC’s radar we would have to get a legal department hired on earlier than the plan, which we can’t afford to do while giving value to those who supported us. We are losing all the money we put into this, but want to make sure our supporters are taken care of. We will live and learn and start pushing forward as a team.”
The sheer amount of funds raised in 2017, around $1.2 billion, has begun to force the hand of federal regulators into playing a more active role in overseeing the cryptocurrency ecosystem’s favorite fundraising mechanism. Although further clarification of the securities laws as applied to the new asset class would be helpful, many startups with token offerings should start reading between the lines as to what happened with Protostarr and take appropriate steps.