In April 2020, ParagonCoin went bust. The “decentralized solution for the cannabis industry,” which raised $12 million in a 2017 initial coin offering (ICO), said it would file for bankruptcy after being pursued by the Securities and Exchange Commission (SEC) for an unregistered securities sale.

The legal move—and the founders’ physical move to Eastern Europe—meant investors in the defunct project were left with little to show for their investment. 

Today, the SEC said it is beginning the process of distributing the $175,000 Paragon paid in civil penalties to aggrieved investors.

SEC enforcement has decimated ICO-funded startup ParagonCoin

ParagonCoin was part of the ICO boom of 2017. That was the year Filecoin collected $257 million, Tezos received $232 million, and Polkadot garnered $145 million to build new blockchains. By comparison, Paragon took in a relatively modest $12,066,000 worth of Bitcoin, Ethereum and other cryptocurrencies in exchange for its native PRG token as part of a presale and crowdsale that ended on October 15, 2017.

Paragon, started by Jessica VerSteeg and her husband Egor Lavrov, promised to use blockchain to bring greater transparency to an under-regulated industry while also creating a workaround for cannabis businesses that can’t access traditional banking services. Most dispensaries can’t accept credit or debit cards directly due to federal regulations, a problem Nevada politicians, for example, are also working to solve.

But things quickly went south for Paragon, which employed an aggressive marketing strategy that seemed to catch the SEC’s attention in all the wrong ways. In late 2018, it became one of the first crypto startups to receive an SEC enforcement action stemming from its ICO.

Paragon settled with the SEC, agreeing to return investors’ funds, pay a $250,000 fine, and register PRG as a security. 

In March 2019, it filed paperwork with the SEC registering PRG as a security. However, after claiming a net loss in 2018 of $11 million—tied not only to administrative expenses from its SEC battle but also to questionable expenditures such as $463,000 to Lavrov for marketing services—the company was unable to return investors’ funds and only managed to send the SEC $175,000 of the $250,000 penalty it had promised.

By late 2019, as investors began suing for their missing money, Lavrov and VerSteeg, who finished in 9th in Season 28 of global competition The Amazing Race with her teammate, were frequenting Europe. They can be seen in a July 2019 post on Instagram, apparently in Ukraine (Lavrov is a Russian citizen). After that, VerSteeg–a former model with an A+ social media game, all but stopped posting.

In April 2020, Paragon made it official, announcing via its website that it was filing for bankruptcy.

“We never considered ourselves experts in the matter of US securities, therefore we sought out the guidance of highly recommended lawyers that were supposed to help, unfortunately they misguided and failed us,” the homepage reads. “We did our best to launch the product, but most of our resources were allocated to legal battles and compliance requirements.”

Today’s action by the SEC moves the $175,000 Paragon paid from the US Treasury to a “fair fund,” which the SEC uses to pay back investors or return profits. A civil suit is ongoing.