Protostarr.io, a blockchain startup, proposed to develop a smart contract as a way for rising internet celebrities on YouTube, Twitch and other video and live streaming platforms to get funded by their fans. They even had their initial coin offering (ICO) began on August 13, 2017 which helped them raise 119.5 ETH , valued approx. $ 47,000 USD (as on Sep 01, 2017).
According to a press release on August 31, 2017, they were
contacted by the United States Security and Exchange Commission (SEC) regarding the initial coin offering of Protostarr tokens to fund the development of their 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”.
“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 [decentralized application] and challenge the SEC’s investigation regarding our ICO and its interpretation under US securities law,” the statement read.
The Securities and Exchange Commission (SEC) issued an investigative report on July 25, 2017, cautioning market participants that offers and sales of digital assets by "virtual" organizations are subject to the requirements of the federal securities laws. The report determined that DAO tokens were securities and confirmed that some but not all coins are structured as securities and so the ones that are would need to register with the SEC.
Apparently, team did not consult a lawyer before its ICO. With a small team of tech nerds, they missed out on specific laws that were applied to them and by the time they realized, it was too late.
Protostarr is the first project that has to shut down due to SEC regulations on cryptocurrency. Another crypto startup Harbour, also had to postponed ICO and returned money of investors who participated in Pre-ICO, after the SEC report.
Individuals who paid Ethereum to the Protostarr.io crowdsale, will receive a refund to the originating wallet address. Refunds will begin on September 02, 2017 for all incoming transactions made to the crowdsale wallet before the refund date. For immediate inquiries related to the refund of payments, contact email@example.com.