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An ICO might claim that its token is not a security at all, but ''utility token" that provide investors with current or future access to a product or service. However, as the SEC has recognized, “merely calling a token a ‘utility’ token or structuring it to provide some utility does not prevent the token from being a security.” Under securities laws, a promoter’s sale of a security that has not been registered with the SEC and does not qualify for exemption from registration confers legal rights on investors. One of those rights is the right of rescission. To put it simply, an investor who bought a security from a promoter who ignored registration requirements has a right to the return of his investment.

SEC orders cryptocurrency companies to return money to ICO investors in groundbreaking settlement

Two cryptocurrency companies have been ordered to offer money back to investors who participated in their ICOs, setting a precedent for future cases. The two companies — Paragon Coin and CarrierEQ — came to settlements with the U.S. Securities and Exchange Commission and will each have to pay fines of $250,000. In addition to returning funds to investors, the two companies will have to file financial statements and other documents that give prospective investors a window into the health of the business, a first for an ICO case. “We have made it clear that companies that issue securities through ICOs are required to comply with existing statutes and rules governing the registration of securities,” Stephanie Avakian, co-director of the SEC’s Enforcement Division said in a statement. “These cases tell those who are considering taking similar actions that we continue to be on the lookout for violations of the federal securities laws with respect to digital assets.” Paragon, which raised $12 million in a August 2017 ICO and CarrierEQ raised $15 million in an October 2017 ICO.  Both companies are to provide refunds to investors.