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Case No. 4:18-cv-00671-JSW DECLARATION OF ROSEMARY M. RIVAS IN SUPPORT OF PLAINTIFF’S EX PARTE

APPLICATION FOR TEMPORARY RESTRAINING ORDER AND ORDER TO SHOW CAUSE WHY A PRELIMINARY INJUNCTION SHOULD NOT ISSUE

Rosemary M. Rivas (State Bar No. 209147) Email: rrivas@zlk.com LEVI & KORSINSKY, LLP 44 Montgomery Street, Suite 650 San Francisco, California 94104 Telephone: (415) 291-2420 Facsimile: (415) 484-1294 Eduard Korsinsky (to be admitted pro hac vice) Email: ek@zlk.com LEVI & KORSINSKY, LLP 30 Broad Street, 24th Floor New York, New York 10004 Telephone: (212) 363-7500 Facsimile: (212) 636-7171 Donald J. Enright (to be admitted pro hac vice) Email: denright@zlk.com John A. Carriel (to be admitted pro hac vice) Email: jcarriel@zlk.com LEVI & KORSINSKY, LLP 1101 30th St., NW, Ste. 115 Washington, DC 20007 Telephone: (202) 524-4292 Facsimile: (202) 333-2121 Attorneys for Plaintiff Astley Davy

UNITED STATES DISTRICT COURT

FOR THE NORTHERN DISTRICT OF CALIFORNIA

OAKLAND DIVISION

ASTLEY DAVY, Individually and on Behalf of

All Others Similarly Situated,

Plaintiff,

v. PARAGON COIN, INC., JESSICA VERSTEEG, and EGOR LAVROV,

Defendants.

Case No. 4:18-cv-00671-JSW

DECLARATION OF ROSEMARY M. RIVAS

IN SUPPORT OF PLAINTIFF’S EX PARTE

APPLICATION FOR TEMPORARY

RESTRAINING ORDER AND ORDER TO

SHOW CAUSE WHY A PRELIMINARY

INJUNCTION SHOULD NOT ISSUE

Judge: Hon. Jeffrey S. White

Crtrm.: 5-2nd Floor

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1 Case No. 4:18-cv-00671-JSW DECLARATION OF ROSEMARY M. RIVAS IN SUPPORT OF PLAINTIFF’S EX PARTE

APPLICATION FOR TEMPORARY RESTRAINING ORDER AND ORDER TO SHOW CAUSE WHY A PRELIMINARY INJUNCTION SHOULD NOT ISSUE

I, Rosemary M. Rivas, declare as follows:

1. I am a member in good standing of the Bar of this Court, and a partner in the law firm

of Levi & Korsinsky, LLP, counsel for Plaintiff Astley Davy in the above-captioned action. This

declaration is based on my own personal knowledge and/or the firm’s records of the matters stated

herein and, if called upon, I could and would competently testify thereto.

2. I submit this declaration in support of the Plaintiff’s Ex Parte Application for Temporary

Restraining Order and Order to Show Cause Why a Preliminary Injunction Should Not Issue.

3. Attached hereto as Exhibit 1 is true and correct copy of a screenshot of Paragon Coin,

Inc.’s corporate status from the State of Delaware, Division of Corporations’ website,

https://icis.corp.delaware.gov, on January 30, 2018.

4. Attached hereto as Exhibit 2 is true and correct copy of the Paragon Whitepaper,

obtained from http://paragoncoin.com/whitepaper.pdf.

5. Attached hereto as Exhibit 3 is a true and correct copy of the Crowdfund Insider online

article entitled “The Paragon ICO is Just Killing it as the Token Pre-Sale Sells Out” published on

September 26, 2017, available at https://www.crowdfundinsider.com/2017/09/122405-paragon-ico-

just-killing-token-pre-sale-sells/.

6. Attached hereto as Exhibit 4 is a true and correct copy of an online “review” of the

Paragon ICO obtained from, https://top10bestupcomingicos.com/partners/paragon/.

7. Attached hereto as Exhibit 5 is a true and correct copy of an email Plaintiff Astley Daby

received from “ParagonCoin” on November 2, 2017 at 1:20 PM EST.

8. Attached hereto as Exhibit 6 is a true and correct copy of Jay Clayton’s “Statement on

Cryptocurrencies and Initial Coin Offerings, published on December 11, 2017, available at

https://www.sec.gov/news/public-statement/statement-clayton-2017-12-11.

9. Attached hereto as Exhibit 7 is a true and correct copy of an online article posted on the

Paragon Coin website on December 5, 2017, entitled “Our First Paragon Space Will be Opening in LA,

available at https://paragoncoin.com/blog/our-first-paragon-space-will-be-opening-in-la.

10. Attached hereto as Exhibit 8 is a true and correct copy of an online Forbes article

entitled “The Iowa Beauty Queen, The Russian Technocrat And Their Cannabis Crypto Launch,

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2 Case No. 4:18-cv-00671-JSW DECLARATION OF ROSEMARY M. RIVAS IN SUPPORT OF PLAINTIFF’S EX PARTE

APPLICATION FOR TEMPORARY RESTRAINING ORDER AND ORDER TO SHOW CAUSE WHY A PRELIMINARY INJUNCTION SHOULD NOT ISSUE

published on September 15, 2017, available at https://www.forbes.com/sites/chitraragavan/2017/

09/15/the-iowa-beauty-queen-the-russian-technocrat-and-their-cannabis-crypto-launch/#510b8843

424a.

11. Attached hereto as Exhibit 9 is a true and correct copy of the “Report of Investigation

Pursuant to Section 21(a) of the Exchange Act of 1934” concerning The DAO issued by the Securities

and Exchange Commission on July 25, 2017.

12. Attached hereto as Exhibit 10 is a true and correct copy of the Smart ICO Investor

online review entitled “ParagonCoin ICO – The $100 Mln Blockchain Run By A Model, A Rapper and

the Father of the Russian Internet” published on August 25, 2017, available at https://smarticoinvestor.

com/paragoncoin/.

13. Attached hereto as Exhibit 11 is a true and correct copy of the online Cryptovest online

article entitled “Prodeum ICO Exits With a Prank, No Real Haul” published on January 29, 2018,

available at https://cryptovest.com/news/prodeum-ico-exits-with-a-prank-no-real-haul/.

14. Based on a thorough search of the SEC’s EDGAR database, no registration statement

was filed with the Securities and Exchange Commission regarding the PRG Tokens and/or the Paragon

initial coin offering. See https://www.sec.gov/cgi-bin/browse-edgar?company=Paragon+Coin&

match=&CIK=&filenum=&State=&Country=&SIC=&owner=exclude&Find=Find+Companies&a

ction=getcompany.

15. Attached hereto as Exhibit 12 is a true and correct copy of Plaintiff’s Complaint filed

on January 30, 2018.

I declare under penalty of perjury of the laws of the United States of America that the foregoing

is true and correct. Executed on January 31, 2018, in San Francisco, California.

/s/ Rosemary M. Rivas

Rosemary M. Rivas

EXHIBIT 1

EXHIBIT 2

WHITEPAPERVERSION 1.0

REVOLUTIONIZING ALL THINGS CANNABIS WITH

BLOCKCHAIN

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Abstract .........................................................................3

Background ...................................................................4

Mission Statement ........................................................7

Paragon Business Model ..............................................8 Paragon Smart Contracts ......................................9 ParagonCoin ........................................................12 ParagonSpace .....................................................16 ParagonOnline .....................................................21 ParagonAccelerator .............................................23

Collaboration with IOTA ..............................................27

Roadmap ....................................................................28

Finances .....................................................................29

Team ..........................................................................34

Partners .....................................................................36

Risks ..........................................................................37

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ABSTRACT “We’ve entered the most profound era of change for financial services companies since the 1970s brought us index mutual funds, discount brokers and ATMs.” Business Insider 7 July 2016

The cannabis industry has traditionally been fragmented, untrustworthy, and illicit, but it is now moving towards greater legitimacy. New research shows powerful health benefits of cannabis and strong social movements are pushing for increased legal-ization. One way to improve the reputation of the industry is to modernize it, make it standardized, fully verifiable, and built on a system of trust between patients, doctors, growers, and suppliers. New blockchain technology / Distributed Ledger Technolo-gy(DLT) offers an ideal solution. Since blockchain holds an immutable ledger and as-sured contracts, it can easily accommodate the recording and storing of all product life cycle events, verify patient identification, assure payments, and more. Paragon seeks to create a crypto-token built on smart contracts on blockchain specifically for the worldwide cannabis community. Paragon is the first organization dedicated to leveraging smart contracts built on the blockchain to create and foster a community dedicated to the worldwide legalization and systematization of cannabis.

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1. BACKGROUNDThe 21st century brings dramatic changes in health, finance, business, and technol-ogy. It offers many opportunities to take advantage of changing trends and build on innovation. In the health field alone, we are witnessing great strides to cure diseases, manage symptoms, and reduce or eliminate chronic pain. However, one of the most remarkable methods remains illegal in multiple states and at the federal level in the United States. Our goal is to change the legal status of cannabis, ensure the benefits are available globally, and create a framework that brings regulation and verification to the cannabis industry.

Governments around the world, most particularly the United States government, have restricted and penalized cannabis users and businesses. Yet, we are seeing devel-opments that push the US federal government to establish, regulate, and encourage an open and fair market for the use and sale of cannabis. Currently, the $150 billion cannabis industry struggles with a patchwork of laws and regulations. Because there has been no standardization of federal regulations to allow for the legal trade of can-nabis, it has been forced underground, increasing the suffering of many ill people, preventing efficient and accurate business practices, adding to the crime rate, and losing state governments a great deal of potential tax revenue.

Before cannabis can fulfill its health benefit potential, there are a series of prob-lems that need to be overcome:

• Datedprohibitionlawsthatlabelcannabiswithanerroneousclassification

• Payment laws that make it nearly impossible to use traditional banking or credit solutions

• Uneducated politicians guided by obsolete and incorrect information

• Social stigma and public opinion against cannabis

• A patchwork of laws that differ from county to county, state to state, and country to country

• Noestablishedstandardsforpurity,labtesting,IDverification,organicorecofriendlycertifications,prescriptions,THC/CBDpotency,start-to-finishtracking, and so on.

• Poorandinefficientdistributionsystem

• Fewplacesthatallowcannabisbusinessestorentofficespace(so-called“Green Zones”)

New blockchain technology presents a solution to most of these problems. Smart contracts built on a blockchain erase borders and unite dedicated people through-out the world. These committed advocates can use social platforms to change laws, stop prosecutions, and ultimately legalize cannabis. Moreover, they can also build applications that make the industry safe, responsible, and organized via standardization and tokenization. This passionate focus on one emerging in-dustry can help pool strong talent in this area so as to achieve maximum results.

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The cannabis industry is in the early stages of transitioning from an illicit to a legal economy. Of the $53 billion spent on cannabis in 2016 in the United States alone, only $7 billion was spent through legal channels. Clearly, legalizing the system will open a floodgate for new businesses.

Now is the ideal time to take advantage of the growth potential of cannabis. Three converging forces make legalization much more likely:

1. Increased public opinion favors legalization. Look at some past head-lines:

a. BRITONS WANT CANNABIS TO BE LEGALISED – CHANGE IS INEVITABLE, SAYS EX-MINISTER

b. CANNABIS LEGALISATION: 47% SUPPORT SALE OF DRUG THROUGH LICENSED SHOPS, POLL REVEALS

c. SUPPORT FOR MARIJUANA LEGALIZATION CON-TINUES TO RISE

It goes on to say 57% of U.S. adults favor marijuana legalization, while only 37% want it to remain illegal.

2. Numerous medical research4 studies support the effectiveness of can-nabis in alleviating multiple autoimmune illness symptoms, neurologi cal conditions, and other needed benefits.

a. “...marijuana has been shown to reduce nausea and vomiting and to increase appetite in patients debilitated by AIDS and cancer or in patients who suffer effects of potent cytotoxic or antiretroviral treatments.”

JAIDS Journal of Acquired Immune Deficiency Syndromes5

b. “Use of marijuana for chronic pain, neuropathic pain, and spasticity due to multiple sclerosis is supported by high-quality evidence.”

Journal of the American Medical Association6

c. “A more detailed NIDA-funded analysis showed that legally protected medical marijuana dispensaries, not just medical marijuana laws, were also associated with a decrease in the following: opioid prescribing, self-reports of opioid misuse, [and] treatment admissions for opioid ad-diction.”

National Institute on Drug Abuse 75

- The Guardian1

- Independent 2

- Pew Research3

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3. Cannabis has a unique and passionate following. Those with ill health who are learning about the benefits of cannabis are demanding change. Millions of others desire easy, legal access to cannabis in all its various forms. When given a forum to unite them, they will brainstorm effective ways to realize change. They will network to influence those in power and publish informa-tion to change the minds of dissenting voters. By building on this network and community, legalization of cannabis can happen much more quickly, placing Paragon in the preeminent position of a global cannabis cryptocurrency.

Paragon plans to create a structure and technology that will solve the issues that surround the legal cannabis industry. The technology is ready to be used and sets up Paragon to take advantage of the ever increasing scope of cannabis legaliza-tion.

1 Doward, Jamie “Britons want cannabis to be legalised – change is inevitable, says ex-minister” The Guardian 7 May 2016 http://www.theguardian.com/society/2016/may/07/cannabis-law-reform-norman-lamb2 Grice, Andrew “Cannabis legalisation: 47% support sale of drug through licensed shops, poll reveals” Independent 9 April 2016 http://www.independent.co.uk/news/uk/home-news/legalising-cannabis-47-support-sale-of-drug-through-licensed-shops-poll-reveals-a6976796.html 3 Geiger, Abigail “Support for marijuana legalization continues to rise” Pew Research 12 Oct 2016 http://www.pewresearch.org/fact-tank/2016/10/12/support-for-marijuana-legalization-continues-to-rise/ 4 Mercola, Joseph “Marijuana Research Supports its Safety and Benefits” 16 May 2015 http://articles.mercola.com/sites/articles/archive/2015/05/16/research-supports-marijuana-benefits.aspx 5 Prentiss, Diane MA, MPH; Power, Rachel PhD; Balmas, Gladys MD, MPH; Tzuang, Gloria MPH; Israelski, Dennis M. MD “Patterns of Marijuana Use Among Patients With HIV/AIDS Followed in a Public Health Care Setting” JAIDS Journal of Acquired Immune Deficiency Syndromes: 1 January 2004 - Volume 35 - Issue 1 - pp 38-456 Kevin P. Hill, MD, MHS, “Medical Marijuana for Treatment of Chronic Pain and Other Medical and Psychiatric Prob-lems:A Clinical Review” Journal of the American Medical Association June 23/30, 2015JAMA. 2015;313(24):2474-2483. doi:10.1001/jama.2015.61997 “Marijuna as Medicine” National Institute on Drug Abuse, April 2017 https://www.drugabuse.gov/publications/drugfacts/marijuana-medicine

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2. MISSION STATEMENTParagon seeks to pull the cannabis community from marginalized to mainstream by building blockchain into every step of the cannabis industry and by working toward full legalization. Our strength lies in the unique blockchain/cannabis con-nection that uses smart contracts. We believe in blockchain, and we believe in the benefits of cannabis. More uses of cannabis are coming to light, and we want to accelerate that process. We believe cannabis is good for individuals and good for countries. We are passionate about moving forward in an ethical, morally respon-sible, and legal way.

Why did we choose the name of Paragon? Because Paragon means “exceptional” and that is what we aspire to be:

1. We support vital causes: Improved health, reduced criminalization of good peo-ple, and the freedom to make our own choices.

2. We support the blockchain community. We will try to use as much PRG tokens and as little fiat currencies as possible while implementing our ideas.

3. We are standardizing and unifying a fragmented industry. We will build block-chain smart contract solutions for many of the industry’s weaknesses. The industry needs help with lab testing, supply chain, ID verification, compliance, etc. All these respond well to smart contracts.

4. We seek to create a physical ecosystem for cannabis and the new cryptocoin. Our office workspace opens up a critical place for cannabis companies to work and thrive.

5. We are transparent. Funds will be escrowed and our books will be audited by reputable companies, such as Deloitte, Grant Thornton, or other well-recognized, in-ternational accounting firms experienced with the nascent blockchain industry.

6. The platform is open-source. It can be used by anyone to build their own can-nabis smart contract or blockchain application, create their own token crowdsale , promote their specific cause, etc.

7. We are responsible. We limit our own benefits, putting the cause first. This is our passion. We are committed to the legalization efforts and the community.

8. We give our members a voice. Pitch your ideas, help others, get funded, support other ideas, and decide our future through a voting system.

9. We are groundbreaking. We will take advantage of the media’s interest in the hot topics of cannabis and cryptocurrencies. We benefit from being a community led by a female entrepreneur and we are the only strong global movement for cannabis utilizing the emerging smart contract/blockchain technology.

Paragon’s passion, committed community, strong technology, and experienced leadership make this cryptocurrency the natural choice for the cannabis industry.

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3. PARAGON BUSINESS MODELWe started Paragon to resolve many issues currently faced by the cannabis indus-try. Blockchain-built smart contract technology is ideally suited to organize, system-atize, and bring verification and stability to a traditionally unchecked industry. Even before full legalization there are many opportunities for blockchain and crypto-to-kens to enhance the cannabis community and business model.

Paragon will use blockchain smart contracts to:

•CreateanimmutableledgerforallindustryrelateddataviaParagonChain

• Offerpayment for industry relatedservicesandsupplies throughPara-gonCoin

•Establishnicheco-workingspacesviaParagonSpace

•OrganizeandunitegloballegalizationeffortsthroughParagonOnline

•Bringstandardizationoflicensing,labtesting,transactions,supplychainandIDverificationthroughappsbuiltinParagonAccelerator

The Paragon model starts with a crypto-token and blockchain technology. It then sets up a network of physical cooperative workspaces where members can work, meet, socialize, and create. This will resolve issues with leases for cannabis-based startups and dispensaries that struggle with finding affordable and suitable loca-tions to house their business.

Paragon’s organization also includes online platforms to unite people around the world who are committed to cannabis legalization. Harnessing and focusing this dedicated community will quickly strengthen the legalization movement and is ex-pected to positively influence the demand for and respectively value of Paragon’s cryptocurrency, PRG.

Finally, Paragon will actively support and fund blockchain innovation in the cannabis field, such that it increases the use and importance of PRG.

Paragon’s business model is both unified and complementary. Each part combines to improve the whole. We will go into depth with each aspect and discuss what it does, how it works, and what makes it unique.

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3.1 PARAGON SMART CONTRACTS

Using Blockchain Smart Contracts to Innovate the Cannabis Industry.

Paragon takes advantage of the digital and verifiable nature of blockchain to solve the fragmentation of the cannabis market and the marginalization of businesses and consumers. Blockchain smart contracts are ideal for recording and facilitating the exchange of value, goods, services, and private data. Putting cannabis data and transactions on blockchain smart contracts will also increase the speed of service and save companies hundreds of thousands in reduced paperwork.

Blockchain connects all facets of the cannabis industry from start to finish

The PRG smart contracts can immediately serve a number of businesses within the cannabis industry. With legal changes, increased community regulations and accep-tance, other business opportunities may emerge. Blockchain smart contracts can instantly and accurately register and record these events:

Blockchain based smart contracts provide accountability in a way no other technol-ogy can offer.

•Providesanimmutableledgerthatofferspermanentverificationofeverypast transaction, so it builds trust

•Storesallproductlifecycleeventsforeverinaneasy-to-retrievesystem

•Letsmultipleappssimultaneouslyinteractwithanypieceofinformationstored in blockchain

•Offersanonymouspatientidentification

•Facilitatespeer-to-peertransactionsacrosstheglobe

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The combination of decentralized encryption, anonymity, immutability, and global scale turns Paragon into the ultimate online community for the legalization of can-nabis across borders.

Paragon is built with smart contracts on the Ethereum blockchain. It is an advanced, open and completely decentralized application platform. Ethereum uses all the strengths of Bitcoin’s original technology. Blockchain was first established as a dig-ital currency for use in financial systems, but the second generation blockchain and its associated smart contract technology can be used for so much more.

Ethereum builds on Bitcoin to offer contracts and other kinds of verified transac-tions. Paragon adds another layer to Ethereum, letting it focus on solving problems unique to cannabis growers, dispensaries, labs, doctors, and customers. Paragon builds on the strength of a well- established system to offer applications, perform financial services, create a new cryptocurrency, and form a messaging system.

As such, Paragon provides not only the groundbreaking Ethereum based crypto-cur-rency called ParagonCoin (PRG) but also a powerful, modular toolset to build appli-cations that can track shipments, verify potency, identify medical patients and their prescriptions, and a host of applications not yet imagined. Ethereum gives users complete freedom to create their own applications on the Paragon platform.

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Some examples of smart contract/blockchain uses within the cannabis industry in-clude:

•BlockchainverificationofmedicalmarijuanaIDsandprescriptions:Thiscould be an interface for doctors to sign, vendors and government to verify, with doctors paid in PRG. There could be a small fee for each ver-ification.

•Supplychaintransparency:Trackandtraceactivitylogs,transfers,per-missions, safety concerns (i.e.,who handles, expiration of perishableitems), and more.

•Letsmultipleappssimultaneouslyinteractwithanypieceofinformationstored in blockchain.

• Share document via smart contracts: Contracts accompany purchaseorders. As conditions change, rules change, or the availability changes, sothecontractcanbeautomaticallyadjusted.

•Facilitatespeer-to-peertransactionsacrosstheglobe.

•Securetransferofassets:Recordthequantityofassetssuchaspallets,trailers, containers, as they move between supply chain nodes.

•Trackpurchaseorders:Changeorders,receipts,shipmentnotifications,orothertrade-relateddocumentsasneeded.

• Assign or verify certifications or certain properties of physical prod-ucts:Forexample,determiningifafoodproductisorganicorfairtrade,lab-testedpureCBDorpureTHC,amountsoftheactiveingredient,etc.

•Linkphysicalgoodstoserialnumbers,barcodes,digitaltagslikeRFID,etc.

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3.2 PARAGON COIN

ParagonCoin (PRG) can create a global ecosystem where businesses and consum-ers can quickly and easily verifiably transfer funds — business to business, business to consumer, and/or consumer to consumer. A cryptocurrency correctly implement-ed is the logical solution to an ongoing issue with an unregulated marketplace. It readily solves the most major impediment to cannabis innovation and growth: the banking and payments issues.

PRG Distribution and Supply

PRG will be the digital token that powers and incentivizes the Paragon user com-munity and content platform. This digital token can be exchanged for fiat currency (dollars, euros, yen), in jurisdictions where such exchange is legal, or other crypto-currency (e.g., Bitcoin, Ether) on various cryptocurrency exchanges after the initial ICO. The projected value is expected to be about USD $1.00 per PRG (fiat currency price throughout this White Paper is provided for illustrative purposes only; no fiat currency will be accepted during the PRG token crowdsale, only cryptocurrencies such as BTC, ETH, LTC IOTA and others).

Name: ParagonCoinTicker: PRG

Based on: Ethereum

Technical data:

• Atotalof200,000,000PRGwillbegenerated.Therewillbenofurtherproduction of tokens so, over time, the tokens in circulation shall reduce in number and increase in demand.

• Desktopwallets forMacOS,Windows,andLinuxkeepcryptocurrencysafe while allowing for easy transfers, balance viewing, and simple use.

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•TokensarecreatedwithanERC20tokensmartcontract.Theintegrityofthesystemisbuiltontheself-interestoftokenowners.Ownersofmoretokens may have more say in the Paragon community and the direction Paragon takes.

•Fastnetworkspeedswithtransactionssettlinginaminuteorso.

•Ethereumbackedvotingfeature:PRGusesblockchain-basedvotingfora true democracy.

•Expandednotaryand/ororacleserviceispossibleonEthereumblock-chain with ParagonCoin.

•Multi-signatureaccountscanbeimplementedinjusttwoclicks.

•Fixedfeesmakeiteasytoknowyourcosts.Youdon’tneedtocalculatehow much each transaction will cost.

•BestApplicationProgramInterface(API)andsmartcontractdocumen-tation available on blockchain.

•User-friendlyGraphicUserInterface(GUI)makesiteasytogofromideato implementation without a lot of tech skills or developers needed.

Token distribution is an important part of a token crowdsale. The distributed value and frequency of token production influence token price. 200,000,000 total tokens will be generated. These tokens will be introduced in two ways. Token crowdsale will be conducted as follows.

•100,000,000tokensforsalevaluedat$1.00USDeachatstage1

•50,000,000tokensforsaleatstage2-nosoonerthan2021,atmarketprice(nottheinitial$1ofthefirstcrowdsale)

•40,000,000tokensallottedforParagoncontrolledreservetomaintainprice support of the PRG tokens. Tokens can be bought or sold to keep the tokens circulation stable

•10,000,000tokenscommunity-controlledreservetobeusedforthebest startup ideas as voted on by the community

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Paragon is committed to a fully transparent process even beyond the open source coding. Here are other ways we will work for transparency and community control.

• Engageoneof the “Big Four” accounting companies for annual third-partyaudits.

•FoundersandteammemberswhoownPRGwillbeprohibitedfromliquidatingthatPRGatarateofmorethan20%oftheirpositionwithinthefirstcalendaryear. This is to prevent dumping and to keep a stable token price. It keeps their interests aligned with the Paragon community.

• Reservedtokencrowdsalefundswillbeinaccessibleforanyotherpurposethan future token crowdsale events. The PRG price of the second and third to-ken crowdsale events will be determined based on, but not limited to, the PRG exchangepricepriortothecrowdsaleeventinquestion.

•Communityapprovalwillbeusedviasmartcontractvoting.Thevotingmayapprove coin reserve unlocking, club membership policy changes, and other changes that affect the Paragon community.

• Aminimalthresholdamountwillberequiredforacompletedtokencrowd-sale. The token offering will have a series of cap levels. If the token crowdsale doesnotreachitsminimumcapof10million,anyfundsreceivedduringthetoken crowdsale will be returned to the original initiating wallets automati-cally.Assumingtheminimumthreshold isexceeded,butthemaximumcapof100milliontokensisnotmet,anyunsoldtokenswillbeburned.Anyfundsreceivedafterhavingreachedthemaximumcapof100milliontokenswillbeautomaticallyreturnedtothesenders’wallet.

•Third-partyrecognizedescrowagentwillensuretokensdepositedforatokencrowdsalearekeptsecureuntil thetokencrowdsale isfinalizedandtheto-kens generated.

•Eachtokencrowdsalewillbedesignedtoreducethenumberoflargebuyers(whales)whomaywant todumptokens. Instead, the tokencrowdsale willfavor smaller investors who are committed to the cannabis cause and plan on participating in the community.

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How to Get ParagonCoins

The initial token crowdsale will take place between September 15, 2017 and October 16, 2017, and can be accessed via our website: http://paragoncoin.com. Please reg-ister for the token crowdsale so you are notified of the opening of the event. Recent token crowdsales (also commonly referred to as ICOs) have sold out in minutes. Be sure to take advantage of notification and prior registration so you do not miss out.

After the initial token crowdsale , opening a coin account with Paragon will be easy and free using existing Ethereum wallets. Because Paragon is truly decentralized, it uses peer-to-peer technology to operate with no central authority. The network col-lectively carries out the issuing of ParagonCoins. It works everywhere, anytime, so business can be transacted 24/7 in any part of the world.

Post-crowdsale , interested people will also be able to purchase and sell PRG on exchanges, subject to applicable regulations in their country of residence.

All transactions will be secured with state-of-the art cryptography, and the block-chain integrity will be protected by CPU-efficient, ASIC-resistant proof of stake. This unique model will allow us to speed transactions and satisfy banking needs for can-nabis-related businesses. In particular, it will offer cannabis businesses and con-sumers a legal alternative to the current regulatory restrictions.

Paragon is committed to the cryptocurrency community. We want to keep the value of PRG strong and growing. We also do not want our token crowdsale to affect the Bitcoin price. To that end, we will be very careful as we convert the token crowdsale proceedings to fiat currency to pay for expenses. We will stage the conversion of the token crowdsale proceeds over time and through multiple cryptocurrencies and ex-changes. This will dilute any impact that volume might make on either PRG or other cryptocurrencies.

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3.3 PARAGON SPACE

We are creating a chain of high-tech, fully equipped Paragon centers similar to WeWork®8. We will put them in areas where cannabis is legal, and there is strong interest in cannabis. This will give startups easy access to a network of resources to set up, manage, and grow their business with the help of like-minded individuals. Within the co-working spaces, indi-viduals can receive mentoring, legal and business advice, and access industry information and best practices. It will facilitate the exchanges of information, education, sales, purchas-es, and transporting of cannabis.

Our mission is to create a safe physical space where advocates can push to repeal current regulatory restrictions and present information on the benefits of marijuana use for medical conditions, recreational use, and general well being.

Our long-term goal is to expand our presence throughout the US, the EMEA (Europe/Middle East/Africa), and APAC (Asia Pacific) regions. All expansion plans will be carried out in adherence to local laws and regulations. Over 164 million people use marijuana around the world. Major markets and producers in the Americas and Europe began with two source countries — the Netherlands and Canada. They were quickly followed by Germany, Austria, Italy, Finland, Croatia, Australia, New Zealand, Israel, Brazil, and Chile.

Still, the checkerboard of laws and restrictions prohibit cannabis imports or exports across state, and often national, borders. Thus, it makes sense to establish local, brick-and-mortar office spaces and unite the cannabis community one location at a time.

8 WeWork® is a registered trademark of WeWork Companies, Inc. We are not affiliated with or endorsed by WeWork Companies, Inc.

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The Need for ParagonSpace

ParagonSpace fulfills an essential need in the cannabis industry. Areas zoned for cannabis businesses are limited and office space is tight and high priced. Many landlords will not rent to a cannabis business because they fear legal ramifications. Furthermore, most cannabis businesses work in isolation. Paragon is creating the first large-scale cryptocurrency-backed brick-and-mortar project. This may be the only physical community setting where cannabis ideas can cross pollinate and members receive encouragement and support.

ParagonSpace supports several of the main goals of the Paragon mission at once.

1. It offers vital physical office space so like-minded people can work and brain-storm.

2. It supports the ParagonCoin tokens by only accepting PRG in payment for ac-cess to office space and to purchase office equipment, printing and other ser-vices, snacks, and nearly anything else necessary to function in this business environment. Essentially, it creates a PRG sub-economy.

3. It builds a rock-solid foundation for supporting the value of the currency, mak-ing it very attractive to hold and use for the long-term.

4. It solves a real and substantial office space problem in the quickly growing legal cannabis industry.

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The lion’s share of the token crowdsale proceeds will be spent on real-estate acquisition. Think of it as a sort of elite coworking membership where your PRG tokens give you access to physical space. The more tokens you have, the more space you can rent. These office spaces will be rented or leased using PRG as the currency of exchange.

How Does ParagonSpace Work?

To get a reserved space at our center, applicants will need to pitch their legalization ideas or cannabis startup ideas to our community. All applications will be upvoted and/or downvot-ed by the community members with our tokens. Only applicants with the most upvotes will secure a reserved space at our centers; other token holders will still have access and use the common floor for workspace.

Examples of typical PRG transactions in ParagonSpace include (but are not limited to):

•OpeningdoorsbyscanningaQRcodeofanactivewalletwithatleast1PRG

•Payingforyourownand/orguestaccess.RentingfloatingorfixeddeskspaceorprivateofficewithPRG

•Printing/scanning/faxingservicesatParagonCoinCenterscanbepaidautomat-ically with PRG

•Payingforfood,drinks,events,andmerchandisewithsimplePRGcheckout

•Securingconferences,events,research,andeducationalspaceforthelegalizedcannabis industry

•Buyingtimeforphoto/audio/videostudioforproductshootings,interviews,pod-casts, etc.

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•Joiningasocialcluband/orcaféforParagonCoinClubmembers

•Participatinginwebandin-appcoworking,events,andaconference-reservationsystem with instant PRG payment

•SpecializedretailservicesandSPAswithcannabisproductsataflagshiploca-tionwithPRGpaymentandtipping(retailofcannabisproductsatspaslimitedtojurisdictionswheresuchcannabisproductsarelegal)

Where and when feasible pursuant to applicable laws, ParagonSpace sites will also host cannabis dispensaries, which will operate exclusively in our PRG tokens. These will be flagship store locations, highlighting the new retail token technology that we will make available to all cannabis retailers. The exclusive adoption of this new mod-el will not only help with standardization but with supporting the global blockchain and cannabis communities.

Examples of ParagonChain technology that will be used in ParagonSpace sites include:

• Wallets

• Dashboards

• Electronic key to open doors at the co-working spaces

• SDKs to integrate to third-party POS (offline and online) to accept PRG (until legalized — limited use)

• ATMs to convert PRG

• Speed PRG payment system

ParagonSpace acts as an incubator as well. A portion of the revenues from the Par-agonSpace fees will be set aside in a “token fund.” Four times a year, 1% of all appli-cations will receive additional funding from our “token fund” to make their own token crowdsale to fund their legalization efforts.

ParagonSpace shares some similarities to WeWork, which claims “workspace de-signed for fresh ideas, organic networking, and month-to-month flexibility.” WeWork reported $532M in revenue in 2016 with 110 locations, and claims a valuation of $16B with 100,000 members. They have achieved this in less than 5 years. Paragon appeals to a smaller segment of the population, but the need is much greater. We expect to grow just as quickly and to have a measurably more loyal membership. Our conservative projections for the first year are for 10 spaces, with 200 members each, and each of those spending 30-50 PRG per day for office space and other amenities. This equates to an annual run rate of close to 25M PRG.

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Some of these tokens may be removed from circulation as they are used to pay for office building management, maintenance, and taxes. Diminished token numbers may lead to an increased value of each token. We are committed to keeping as much of the operational expenses as possible in PRG and to building a network of suppliers who accept PRG as payment. We will further ensure that future issuances of the token are inline with the demand we create through ParagonSpace’s growth.

ParagonSpace Rollout

The ParagonCoin Center’s anticipated rollout in the following cities (order to be determined by the community):

Oakland (Flagship HQ)Los AngelesDenverTorontoNew YorkBarcelonaLondonMiami

MadridAmsterdamMontevideoSeattlePragueSydneyBerlinCape Town

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3.4 PARAGONONLINECOMMUNITY

Not every cannabis business will be able to work at a ParagonSpace center. How-ever, anyone with internet in any part of the world can access our full-service on-line platform. This platform will allow fans and serious entrepreneurs access to the same blockchain community and technology. Even though members may be scat-tered around the world, their voices will be heard.

ParagonOnline Roles and Goals

The ParagonOnline community essentially serves as the steering committee for the entire organization. They determine key priorities and directions for global actions. New ideas and projects can be offered and discussed by the community, eventually being pushed into development and production if the minimal upvote threshold is achieved.

ParagonOnline is designed to be a “community-based” online space where tasks, functions, goals, and priorities are defined and redefined in real-time by the community. Thus it al-lows for greater freedom and flexibility for users, businesses, and buyers of cannabis. The structure of the Paragon platform encourages individuals to take long-term interests in one project or speculate on a number of ideas.

ParagonOnline will act as a one-stop service and platform for cannabis and alternative pay-ment- related scientists, journalists, investors, marketers, doctors, developers, fintech spe-cialists, entrepreneurs, startups, and lawyers. Because every business is a human venture, the professional networking potential will be highly beneficial. It will give the cannabis in-dustry a whole new dimension.

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* Priorities in the ParagonCoin roadmap can be upvoted and downvoted as well. The community will vote on and determine:

• Which cities get ParagonSpace buildings, which cities get flagship centers• What the community rules will be• What blockchain and smart contract development will have priority and be funded first• Where to push for legalization initiatives

* Community members can meet in groups to discuss and vote. Some of these groups will cover: current legal issues, political legalization efforts, technical development, new business ideas, and new priorities.

* ParagonOnline will serve as the reservation and clearinghouse system for ParagonSpace. Community members will be offered space based on their standing in the community and on the basis of upvotes and downvotes (each costing 0.01 PRG) received from their online contributions.

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The decentralized platform for the legalization of marijuana will not only make professional networking all the easier but, more crucially, make networking, in general, a natural part of our culture. We can reach out to new people with a sense of increased professionalism that heightens respect for the industry. Connections will be celebrated, encouraged, and rewarded.

The aggregate collection of content will create a cannabis research library like no other. One of the incentives that will drive consumers and businesses to use the Paragon platform is that it rewards contributors who post content to the community. Users can be curators, con-tributors, or both. The more content uploaded by a member, the more their influence grows and the more they will be “upvoted” and earn PRG. ParagonOnline will create substantial demand for PRG. We estimate a devoted community of about 1 million in the first year and that the average user will spend about 10 tokens. This brings an exchange of 10M PRG in just the first year.

How Does ParagonOnline Work?

The “blockchain-based social media platform” model is characterized by the different ways that the token is presented to users. At the root is the crypto-token, which is typically a trans-ferable, fungible, freely moveable token similar to Bitcoin or Ether. ParagonOnline will work like a blend of Reddit™ 9 and Steemit™ 10.

We leverage the best practices and approaches of Reddit and Steemit to create a new gen-eration of online community specifically for the cannabis industry and community. It allows a worldwide membership to upvote or downvote potential innovations and support them with ParagonCoin (PRG). Thus, the community decides what projects are of most value and which hold little interest.

Each member will have their own dashboard for membership registration, transaction histo-ry, networking, scheduling, event lists, etc. From there, they can join and keep track of niche discussions that are important to them. They can track the progress of projects they have supported. Here they will also upvote and downvote.

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9Reddit™ is an online social community that posts and discusses a wide range of topics. The platform is community curated with up or down votes. Each member of the community has one vote and can propel an article to popularity with upvotes or move it to obscurity with downvotes. Articles and comments are posted in channels or sub niches by topic.

10Steemit™ takes Reddit to the next stage. It also uses community curated information, but it pays members for their work. They can be paid for content, whether they write it, comment on it, or post someone else’s content. They vote posts up or down by using Steem dollars. The more Steem Power they own, the more influential their vote and the more they, and the person they comment on, get paid in the platform’s Steemit cryptocurrency.

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3.5 PARAGON ACCELERATORParagonAccelerator will work within the ParagonSpace and ParagonOnline communities. Both will have access to the extensive cannabis library and blockchain smart contract tech-nology.

The platform will encourage Space residents and Online users to start their own businesses. They may use simplified pre-formatted plug-and-play kinds of apps found on the platform to quickly innovate. These can help them create two types of smart contracts for their apps. They can receive funding from other Paragon members. All the technical and legal material used to produce ParagonCoin will be available for members for their business projects, even assisting in their own token crowdsales. Paragon is committed to stay at the forefront of all cannabis and blockchain technology and to make it available to all Paragon users. This creates a Paragon advantage that will draw the best and brightest to our community.

As a member of our specialized incubator, members will reap multiple benefits, such as the ability to tap into a strong network of business partners11. Within the incubator, entrepre-neurs and startup founders can access a support system where they could learn from the mistakes of others before erring themselves.

Startups in the Paragon space will now have access to simplified banking in a formerly unbankable industry. They can convert their cash to PRG, and from there, they can buy supplies, pay labs, researchers, and technical support. The goal is to have all transactions possible in PRG and to be a fully alternative method of payment .

An incubator or accelerator can play a huge role in growing a cannabis startup. The Para-gonAccelerator is uniquely linked to the growth of the legal cannabis industry. Our model grows and develops with the industry autonomously, responding to the demand for new businesses with revolutionary ideas.

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• Increased entrepreneurship• Corporatedownsizing• New technologies• Increased involvement of educational institutions in technology transfer• Economicglobalization

Some of the benefits of an applied incubator model include:

11 Brandt, Ellen. “Incubators: A Safe Haven for New Business.” Journal of Property Management. January-February 1991.

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Software and AppsBelow is a sample of the kind of software that uses Paragon’s smart contracts. Apps and software programs such as this are the desired outcome of ParagonAc-celerator.

Paragon Plant Tracking Software (PTS)Setup and System

• Growers may place their grow blueprint into Paragon PTS• System allows RFID tags to track plants in the grow• Identify plants with customized names: Mothers, Clones, Veg, Bloom and

R&D in system • Tag pots. No need for physical tag on plants • Record nutrients and/or required pesticides/anti-fungal • Track and record room temperatures, light type, days in veg, days drying, days

in cure, hand trim, hydro vs. soil, etc.

Clones and Mothers• Record number of clones (trimmings off Mother plants), usually 200-500 into

PTS and label tray• Once you transplant your hardiest clones to pots, record the number of tags

to print and record the number of clones died

Moving Plants• The RFID tags detect when a plant changes rooms and the system will ask

why? Different movement of plants like room transfer, harvest, waste, etc. can be recorded for legal or grower’s purposes.

• When moving a group of plants from room to room (ex: veg to bloom) you can pre-select this move and the system will not alert on this movement.

Destroying Plants• If plants die, the system will record them as destroyed and a reason why (lack

of water, poor roots, mildew, etc.)• PTS can record 24/7 camera surveillance of the disposal bin to ensure no

backdoor selling of “destroyed” plants

AfterHarvest• Scan each harvested plant from that crop into system. Record weight if nec-

essary.• Use PTS to record drying method (hang, rack, etc.) and number of days plant

is dried.• Weigh and record pre-trim and final post-trim weight for crop.

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Test the Crop • Use PTS to record test results for:

• Mold/Mildew• Pesticides• THC/CBD• Full Terpene Profile

• Results can be measured for 10 or 20 lb lots or for the full harvest• PTS places all of this information on the barcode or other site so customers

can access it in retail shops

Processing• Flower

• PTS holds cure time, trim type, etc. that clients can access• Oil

• Oil can include two the flower test result and the required extract test result.

• System will include who OP is• Record final test result after processing, PPMs, full terpene profile, any

cutting agents, etc.• Edibles

• Include who grower and processor are for oils

AfterProcessingandPre-B2B• In system, record number of product SKUs produced. (For example: 150

ounces of SLH, 600 boxes of 100 mg chocolate chip cookies)• PTS ties the inventory to an online ordering system accessible to retailers or

distributors• Producers and processors can control which of their inventory and how

much they want shown on the ordering inventory

Once an Order is Placed• No 24 hour quarantine required (WA i502 law) before delivery• System tracks delivery to shop• Final product tag includes:

• Shop name• Harvest, processing or creation date• THC/CBD• Terpene profile

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• Pesticides• Green certified• Hand trim• Scan code for additional info

System for B2C Online Integration• PTS helps retailers upload their inventory to their websites as an online or-

dering menu• Customers can order online and pick up in-store or purchase online with

delivery if legal in their state• Point of Service may tie into Leafly, WeedMaps, Simple Marijuana Menu, Bak-

er and other online menu services

Clearly, using smart contracts on the blockchain technology can produce programs and apps that make the job of the grower, wholesaler and retailer easier and more profitable. Compliance becomes as easy as implementing a simple system. Consumers have all the information they need for good decisions. Paragon encourages this kind of innovation through ParagonAccelerator.

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4. COLLABORATIONWITHIOTAFor Data Integrity and distribution we will utilize IOTA which has no scaling limitationson transactions. Through IOTA’s next generation distributed ledger ‘Tangle’ which consists of a pure Directed Acyclic Graph (DAG) instead of a sequential chain of blocks ParagonCoin will be able to transmit and secure all kinds of data in a tamper proof fashion for free. Via IOTA we can build an entire end-to-end verifiable audit trail of all the data and information pertaining to the cannabis produce for free at a fine granular level in real time, ensuring full transparency of provenance and meta information such as whether the cannabis is organi-cally grown, exact amounts of pesticides/herbicides used, eco friendly certifications, THC/CBD ratio etc. Having a complete data audit trail with cryptographically ensured integrity of every aspect from production to consumption will be a game changer in enabling a thriv-ing and sensible cannabis industry.In the future ParagonCoin will also explore utilizing the unique approach that the IOTA platform takes to ‘oracles’, identity and other parts of its development roadmap.

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5. ROADMAP

• November 15, 2017: List token on major exchanges

Initial functionality will include:

1. Web-based service for management2. Upvote/downvote capability on the online dashboard3. Doctor database with full verification4. Dispensary regulation and certification5. Service provider database for members to easily acceess services 6. Database for cannabis favorable journalists, attorneys, equipment manu

facturers, marketing, PR, etc.

Purchasing and renovating buildings for ParagonSpace will begin immediately as follows:

• February 2018: Purchase first location in Oakland, CA USA • November 2018 : Flagship location and HQ opened, blockchain smart contract

fully functioning, all services operational for all use cases described.

Order of cities to be determined by the community:

• Los Angeles, USA• Oakland, USA• Denver, USA• Madrid, Spain• Amsterdam, Netherlands• Montevideo, Uruguay • Toronto, Canada• New York, USA• Barcelona, Spain• London, England• Miami, USA• Seattle, USA• Prague, Czech Republic• Sydney, Australia• Berlin, Germany• Cape Town, South Africa

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6. FINANCES

Token Crowdsale Parameters

Paragon seeks to be fully transparent in all its financial dealings. A measured re-lease of tokens will give Paragon projects and ParagonCoin the opportunity to grow and increase in influence. Escrowed funds and planned purchases of physical prop-erty are what sets Paragon above other token crowdsales.

Paragon will issue a total of 200,000,000 tokens. No additional tokens will ever be generated. Distribution of the initial 100 million tokens will be through a series of token offerings.

The pre-launch contribution timeline begins 30 days before the launch. It starts Au-gust 15, 2017. Within the first 10 days, early participants will receive a 25% discount with a minimum $25k contribution. In the following 10 days, participants will receive a 15% discount with a minimum $15k contribution. In the remaining 10 days, a 10% discount will be given to participants with a minimum $10k contribution.

The Token Crowdsale launch begins September 15. The initial token price will be set at $1 for this launch. During the first 5 hours of the token crowdsale we will offer an early bird 5% discount. Following that, the price will remain at $1 for the remaining of the first 24 hours. Then it will increase $0.05 each 24 hours for 30 days or until all tokens sold.

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TokenCrowdsaleStage150%

The Paragon Token Crowdsale Stage 1 represents the first round of raising capital of 100,000,000 PRG for the further development and implementation of our roadmap.

TokenCrowdsaleStage225%

A total of 50,000,000 PRG will be reserved in escrow account. The full amount of PRG set in reserve will be inaccessible for any other purposes than an additional fundraising round for investors. The token crowdsale amount and time will be determined by community vote. Stage 2 will happen no sooner than 2021, and all tokens will be sold at market price, not at a fixed $1 USD value.

The remaining 50 million PRG will be held in reserve as follows (important note: all percent-age below will be adjusted in accordance with actual amount raised, e.g., if we sell 70M of 100M tokens, the following numbers will be multiplied by 0.7):

ControlledReserveFund20%

Unique to crowdsale startups, Paragon is dedicated to ensuring a stable token to serve the purposes it represents. We are very aware of the ongoing issues with pump and dump schemes that many cryptocurrencies are prone to and intend to address these. Addition-ally, short- and long-term fluctuations in circulating tokens can negatively impact the core functionality of our business model. The Controlled Reserve Fund will be split into two core functions to keep PRG stable.

The flowchart above depicts the possible flow of PRG funds.

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Release PRG to the markets if PRG deflates too fast and pushes token prices up too rapidly. The total PRG in circulation will gradually decrease - tokens will leave circulation and return to Paragon as payment for services - as well as tokens lost as a transaction burn. As a result, the market free float of PRG will decrease over time. However, in the event that PRG displays severe price volatility as a direct result of scarcity: the Reserve Fund may gradually sell PRG to the market in line with our minimum defla-tionary target of 2%.

Buy PRG from the market if PRG price devalues too much.Despite our expectations for the value of PRG to increase as we receive payment in PRG for our services (blockchain and smart contract solutions, ParagonSpace, etc.), the cryptocurrency markets are inherently volatile. As a result, PRG may become subject to excessive sell volume resulting in a significant drop in price. To counter this, the Reserve Fund can intervene by buying back PRG in an effort to stabilize the market price.

PRG is designed to appreciate in value as our solutions are adopted throughout the cannabis industry and around the world. Our model incentivizes PRG owners to hold their tokens as long term growth assets, in addition to spending PRG on any of our platforms. The Controlled Reserve Fund is the sole property of Paragon, and funds cannot be accessed and distributed to employees or investors. Additionally, executives and employees are prohibited from trading PRG for a 48-hour period following a buy-back or sale from the Reserve Fund.

CommunityReserve5%

These special funds are held in reserve by the community to be awarded to the best startup ideas. Those who meet eligibility requirements for our accelerator and are upvoted by our community can be allocated funds.

Token Market Free Float

As a consequence of Paragon’s business model, the amount of tokens in free cir-culation will gradually decrease. Tokens used for community self-governing and for downvoting will be “burned.” In addition, one-half of the transaction fees will be burned. Moreover, PRG in circulation will gradually be channeled back to Paragon as payment for our services and solutions, such as ParagonSpace.

A gradual reduction in circulating supply is part of Paragon’s plan to encourage PRG price stability and growth, but above all, a solid price development over time. This ensures a growth of PRG purchasing power over time. While 1,000 PRG may pay for a month’s rent now, in the future, it might pay for a year’s rent.

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PRG Circulation Model

The relationship of supply and demand, the two variables that impact price, will be the fundamental drivers of change in market price. Demand will be impacted by, but not limited to: payment for Paragons services and co-working spaces. Supply will be impacted by (I) the number of transactions; (II) revenue PRG services; (III) commu-nity self-governing and downvoting.

Based on the above, the free float for PRG can be calculated as follows:

FF PRG = (total token crowdsale funds raised) -/- (#T x BR ) -/- ( $TRev ) + ( $ToM )

FF PRG = Free Float PRG#T = number of transactionsBR = burn rate$TRev = nominal value of PRG revenue flowing back $ToM = nominal value of PRG sold in the open market

We aim to ensure an annual nominal circulating token deflation of 2% to provide a natural hedge against the loss of purchasing power of fiat currency.

Transaction Fees

All fees on the Paragon ecosystem will be paid in PRG. The fee structure will keep the price of each transaction low. Each transaction will cost $.000000005 or 5/1000000000 of a cent (5E-10%). One-half of the fee will be burned each time a transaction occurs, and the other one-half will be deposited to the Paragon Reserve Fund. With the cannabis market surpassing $100B market size in the US alone and current banking issues, we’re hoping to bring a big share of it onto our platform.

Our initial ParagonCoin (PRG) inventory is 200m. We’ll call our Remaining PRG (X). Each progressive Number of Transactions (n) are calculated as the difference of remaining PRG in the previous Transaction Count (Xt-1 where nt-1) and the amount of PRG burned. This is one-half of the calculated Total Commissions (Yt), in the current Number of Transactions (n). Total commissions at each Number of Transactions (n) is calculated by multiplying n by the per unit commission. Per unit commission is figured as the sum of 0.025 and the product of 5E^(-9)% and the Remaining PRG (Xt-1 ) from the previous Trans-action Count.

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As we can see from the visual, the number of remaining PRG decreases rapidly as the Number of Transactions progressively increases.

There will be a small Ethereum fee (gas) applied to each transaction. Based on our calculations, it will be around $0.01.

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*

* This graph has been updated to reflect correct calculation.

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7. TEAM

Our team brings a depth of experience across business, technology, blockchain, smart con-tracts, and the cannabis industry.

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Advisory Board

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Escrow : Clayton Goree at Wells Fargo VP Business Developmenthttps://www.linkedin.com/in/claytongoree/ and Julian Zegelman at Velton - Zegelman Law Firm https://www.linkedin.com/in/jzegelman

8. PARTNERS

CHRONO BANK STOCKS EXCHANGE CLARITY

MELROSE

CANNA BRAND

ICOpromo.com ICO BOX

Velton Zegelman

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JYCC Fund

IOTA We Are Arthur

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9. RISKSParagonCoin Token Generation Event Risk Factors

You should carefully consider and evaluate each of the following risk factors and all other information contained in the Terms before deciding to participate in the PAR-AGONCOIN Token Generation Event (the “TGE”). To the best of PARAGONCOIN LTD (Gibraltar) (the “Company”) knowledge and belief, all risk factors which are material to you in making an informed judgment to participate in the TGE have been set out below. If any of the following considerations, uncertainties or material risks devel-ops into actual events, the business, financial position and/or results of operations of the Company and the maintenance and level of usage of the PARAGONCOIN platform and the PRG Tokens could be materially and adversely affected. In such cases, the trading price of PRG Tokens (in the case where they are listed on a crypto-currency exchange) could decline due to any of these considerations, uncertainties or material risks, and you may lose all or part of your PRG Tokens.

1. RISKSRELATINGTOPARTICIPATIONINTHETOKENGENERATIONEVENT

There is no prior market for PRG Tokens and the Token Generating Event (TGE) may not result in an active or liquid market for the PRG Tokens

Prior to the TGE, there has been no public market for the PRG Tokens. Although the Company will use reasonable endeavors to seek the approval for availability of the PRG Tokens for trading on a cryptocurrency exchange, there is no assurance that such approval will be obtained. Furthermore, even if such approval is granted by a cryptocurrency exchange, there is no assurance that an active or liquid trading mar-ket for the PRG Tokens will develop, or if developed, will be sustained after the PRG Tokens have been made available for trading on such cryptocurrency exchange. There is also no assurance that the market price of the PRG Tokens will not decline below the original purchase price (the “Purchase Price”). The Purchase Price may not be indicative of the market price of the PRG Tokens after they have been made available for trading on a cryptocurrency exchange.

A PRG Token is not a currency issued by any central bank or national, supra-national or quasi-national organization, nor is it backed by any hard assets or other credit. The Company is not responsible for, nor does it pursue, the circulation and trading of PRG Tokens on the market. Trading of PRG Tokens will merely depend on the consensus on its value between the relevant market participants. No one is obliged to purchase any PRG Token from any holder of the PRG Token, including the pur-chasers, nor does anyone guarantee the liquidity or market price of PRG Tokens to any extent at any time.

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Furthermore, PRG Tokens may not be resold to purchasers who are citizens or per-manent residents of Singapore or any other jurisdiction where the purchase of PRG Tokens may be in violation of applicable laws (including but not limited to laws regulating controlled substances, such as cannabis). Accordingly, the Company cannot ensure that there will be any demand or market for PRG Tokens, or that the Purchase Price is indicative of the market price of PRG Tokens after they have been made available for trading on a cryptocurrency exchange.

Future sales or issuance of the PRG Tokens could materially and adversely affect the market price of PRG Tokens

Any future sale or issuance of the PRG Tokens would increase the supply of PRG Tokens in the market and this may result in a downward price pressure on the PRG Token. The sale or distribution of a significant number of PRG Tokens outside of the TGE (including but not limited to the sales of PRG Tokens undertaken after the completion of the initial crowdsale, issuance of PRG Tokens to persons other than purchasers for purposes of community initiatives, business development, academic research, education and market expansion and issuance of PRG Tokens as a reward to users of the PARAGONCOIN platform), or the perception that such further sales or issuance may occur, could adversely affect the trading price of the PRG Tokens.

Negative publicity may materially and adversely affect the price of the PRG Tokens

Negative publicity involving the Company, ParagonCoin, Inc. (the PARAGONCOIN project’s operating entity organized in Delaware, USA), the PARAGONCOIN platform, the PRG Tokens or any of the key personnel of the Company or ParagonCoin, Inc., regulation of cannabis in the US or worldwide, and/or regulation of cryptocurrencies in the US or worldwide, may materially and adversely affect the market perception or market price of the PRG Tokens, whether or not it is justified.

We may not be able to pay any anticipated rewards in the future

There is no assurance that there will be sufficient engagement in the PARAGON-COIN platform such that you will receive any rewards anticipated to be distributed to active users of the PARAGONCOIN platform. Further, even in the event there is substantial engagement and interactions among the users and the PARAGONCOIN platform, there is no assurance you personally will receive any part of the rewards. This is because the ability of the Company to pay any reward to you will depend on the future results of operations and the future business and financial condition of the Company and/or ParagonCoin, Inc., and there is no assurance of the future re-sults of operations and the future business and financial condition of the Company or ParagonCoin, Inc.

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There is no assurance of any success of PARAGONCOIN Platform or any Future Busi-ness Line

The value of, and demand for, the PRG Tokens hinges heavily on the performance of the PARAGONCOIN platform and the continuous active engagement of its users and success of its contemplated business lines. There is no assurance that the PARAGONCOIN platform will gain traction after its launch and achieve any commer-cial success. Furthermore, there is no assurance that any of the business lines con-templated by ParagonCoin, Inc. will be launched and generate sufficient customer traction. Such contemplated business lines currently include but are not limited to: (a) create an immutable ledger for all legal cannabis industry related data via Par-agonChainTM, (b) offer payment for legal cannabis industry related services and supplies through PRG Tokens, (c) establish niche coworking spaces via ParagonS-paceTM, (d) organize and unite global cannabis legalization efforts through Para-gonOnlineTM, and (e) bring standardization of licensing, lab testing, transactions, supply chain and ID verification through apps built in ParagonAcceleratorTM. Al-though ParagonCoin, Inc. has performed several market studies testing the demand for the PARAGONCOIN platform with relatively positive results, the PARAGONCOIN platform has not been fully developed and finalized and is subject to further chang-es, updates, and adjustments prior to its launch. Such changes may result in unex-pected and unforeseen effects on its projected appeal to users, possibly due to the failure to meet users’ preconceived expectations based on the beta version, and hence, impact its success. While the Company has made every effort to provide a realistic estimate, there is also no assurance that the cryptocurrencies raised in the TGE will be sufficient for the development of the PARAGONCOIN platform and/or for the proper structuring and licensing of the anticipated PARAGONCOIN future antici-pated business lines. For the foregoing or any other reason, the development of the PARAGONCOIN platform and launch of the anticipated PARAGONCOIN future busi-ness lines may not be completed and there is no assurance that it will be launched at all. As such, distributed PRG Tokens may hold little worth or value.

The funds raised in the Token Generation Event are exposed to risks of theft

The Company will make every effort to ensure that the funds received from the TGE will be securely held in an escrow wallet, which is a multi-signature address with access thereto by private keys held by reputable and trusted parties. Further, upon receipt of the funds from the Company, ParagonCoin, Inc. will make every effort to ensure that the funds received by it from the Company will be securely held through the implementation of security measures. Notwithstanding such security measures, there is no assurance that there will be no theft of the cryptocurrencies as a result of hacks, sophisticated cyber-attacks, distributed denials of service or errors, vulnera-bilities or defects on the TGE website, in the smart contract(s) on which the escrow wallet and the TGE relies, on the Ethereum or any other blockchain, or otherwise.

39

2017

Such events may include, for example, flaws in programming or source code lead-ing to exploitation or abuse thereof. In such event, even if the TGE is completed, the Company or ParagonCoin, Inc. may not be able to receive the cryptocurrencies raised and ParagonCoin, Inc. may not be able to use such funds for the develop-ment of the PARAGONCOIN platform and/or for launching any future business line, including but not limited to the structuring and licensing of the PARAGONCOIN fu-ture business lines. In such case, the launch of the PARAGONCOIN platform and the structuring and licensing of the PARAGONCOIN future business lines might be temporarily or permanently curtailed. As such, distributed PRG Tokens may hold little worth or value.

2. RISKS RELATING TO THE ESCROW WALLET

The private keys to the escrow wallet may be compromised and the cryptocurrencies may not be able to be disbursed

The escrow wallet is designed to be secure. Each of the holders of the three (3) private keys to the escrow wallet will use all reasonable efforts to safeguard their respective keys, but in the unlikely event that any two (2) of the three (3) keys to the escrow wallet are, for any reason whatsoever, lost, destroyed or otherwise com-promised, the funds held by the escrow wallet may not be able to be retrieved and disbursed, and may be permanently unrecoverable. In such event, even if the TGE is successful, the Company will not be able to receive the funds raised and Para-gonCoin, Inc. will not be able to use such funds for the development of the PARA-GONCOIN platform and the structuring and licensing of the PARAGONCOIN future business lines. As such, distributed PRG Tokens may hold little worth or value.

3. RISKS RELATING TO PARAGONCOIN, INC.

The PARAGONCOIN platform is developed, operated, and maintained by Paragon-Coin, Inc. Any events or circumstances which adversely affect ParagonCoin, Inc. or any of its successor operating entities (collectively referred to herein as “Par-agonCoin, Inc.”) may have a corresponding adverse effect on the PARAGONCOIN platform and any future business line, including but not limited to structuring and launch of the PARAGONCOIN future business lines. Such adverse effects would correspondingly have an impact on the utility, liquidity, and the trading price of the PRG Tokens.

ParagonCoin, Inc. may be materially and adversely affected if it fails to effectively manage its operations as its business develops and evolves, which would have a directimpactonitsabilitytomaintainthePARAGONCOINplatformand/orlaunchany future business lines

40

2017

The financial technology and cryptocurrency industries and the legal cannabis mar-kets in which ParagonCoin, Inc. competes have grown rapidly over the past four years and continue to evolve in response to new technological advances, changing business models, shifting regulations and other factors. As a result of this con-stantly changing environment, ParagonCoin, Inc. may face operational difficulties in adjusting to the changes, and the sustainability of ParagonCoin, Inc. will depend on its ability to manage its operations, ensure that it hires qualified and competent employees, and provides proper training for its personnel. As its business evolves, ParagonCoin, Inc. must also expand and adapt its operational infrastructure. Para-gonCoin, Inc.’s business relies on its blockchain-based software systems, crypto-currency wallets or other related token storage mechanisms, blockchain technology and smart contract technology, and efficient real estate management. All of these systems, tools, and skillsets represent complex, costly, and rapidly changing tech-nical infrastructure. In order to demonstrate continued ability to effectively manage technical support infrastructure for the PARAGONCOIN platform, ParagonCoin, Inc. will need to continue to upgrade and improve its data systems and other operational systems, procedures, and controls. These upgrades and improvements will require a dedication of resources and are likely to be complex and increasingly rely on host-ed computer services from third parties that ParagonCoin, Inc. does not control. If ParagonCoin, Inc. is unable to adapt its systems and organization in a timely, efficient, and cost-effective manner to accommodate changing circumstances, its business, financial condition and results of operations may be adversely affected. If the third parties whom ParagonCoin, Inc. relies on are subject to a security breach or otherwise suffer disruptions that impact the services ParagonCoin, Inc. uses, the integrity and availability of its internal information could be compromised, which may consequently cause the loss of confidential or proprietary information and eco-nomic loss. The loss of financial, labor or other resources, and any other adverse effect on ParagonCoin, Inc.’s business, financial condition and operations, would have a direct adverse effect on ParagonCoin, Inc.’s ability to maintain the PARA-GONCOIN platform and/or to structure and license the anticipated PARAGONCOIN future business lines. Any adverse effects affecting ParagonCoin, Inc.’s business or technology are likely to also adversely impact the utility, liquidity, and trading price of the PRG Tokens.

ParagonCoin,Inc.mayexperiencesystemfailures,unplannedinterruptionsinitsnetwork or services, hardware or software defects, security breaches or other causesthatcouldadverselyaffectParagonCoin,Inc.’sinfrastructurenetwork,and/or the PARAGONCOIN platform

41

2017

ParagonCoin, Inc. is not able to anticipate when there would be occurrences of hacks, cyber-attacks, distributed denials of service or errors, vulnerabilities or de-fects in the PARAGONCOIN platform, the smart contracts on which the Company, ParagonCoin, Inc., or the PARAGONCOIN platform relies or on the Ethereum or any other blockchain. Such events may include, for example, flaws in programming or source code leading to exploitation or abuse thereof. ParagonCoin, Inc. may not be able to detect such hacks, cyber-attacks, distributed denials of service errors vul-nerabilities or defects in a timely manner, and may not have sufficient resources to efficiently cope with multiple service incidents happening simultaneously or in rapid succession. ParagonCoin, Inc.’s network or services, which would include the PARAGONCOIN platform and, if successfully structured, licensed, and launched, the PARAGONCOIN future business lines, could be disrupted by numerous events, including natural di-sasters, equipment breakdown, network connectivity downtime, power losses, or even intentional disruptions of its services, such as disruptions caused by software viruses or attacks by unauthorized users, some of which are beyond ParagonCoin, Inc.’s control. Although ParagonCoin, Inc. has taken steps against malicious attacks on its appliances or its infrastructure, which are critical for the maintenance of the PARAGONCOIN platform, there can be no assurance that cyber-attacks, such as distributed denials of service, will not be attempted in the future, that ParagonCoin, Inc.’s enhanced security measures will be effective. ParagonCoin, Inc. may be prone to attacks on its infrastructure intended to steal information about its technology, financial data or user information or take other actions that would be damaging to ParagonCoin, Inc. and/or holders of the PRG Tokens. Any significant breach of Par-agonCoin, Inc.’s security measures or other disruptions resulting in a compromise of the usability, stability, and security of the PARAGONCOIN platform may adversely affect the utility, liquidity and/or trading price of the PRG Tokens.

We are dependent in part on the location and data center facilities of third parties

ParagonCoin, Inc.’s current infrastructure network is in part established through servers which it owns and houses at the location facilities of third parties, and serv-ers that it rents at data center facilities of third parties. If ParagonCoin, Inc. is unable to renew its data facility lease on commercially reasonable terms or at all, Para-gonCoin, Inc. may be required to transfer its servers to a new data center facility, and may incur significant costs and possible service interruption in connection with the relocation. These facilities are also vulnerable to damage or interruption from, among others, natural disasters, arson, terrorist attacks, power losses, and telecom-munication failures. Additionally, the third-party providers of such facilities may suf-fer a breach of security as a result of third-party action, employee error, malfeasance or otherwise, and a third party may obtain unauthorized access to the data in such servers. Inc. and the providers of such facilities may be unable to anticipate these techniques or to implement adequate preventive measures.

42

2017

General global market and economic conditions may have an adverse impact on Par-agonCoin’s operating performance, results of operations, and cash flows

ParagonCoin, Inc. has been and could continue to be affected by general global eco-nomic and market conditions. Challenging economic conditions worldwide have from time to time, contributed, and may continue to contribute, to slowdowns in the infor-mation technology industry at large. Weakness in the economy could have a negative effect on ParagonCoin, Inc.’s business, operations and financial condition, including decreases in revenue and operating cash flows, and inability to attract future equity and/or debt financing on commercially reasonable terms. Additionally, in a down-cy-cle economic environment, ParagonCoin, Inc. may experience the negative effects of a slowdown in trading and usage of the PARAGONCOIN platform and may delay or cancel the structuring, licensing, and launch of the anticipated PARAGONCOIN future business lines. Suppliers on which ParagonCoin, Inc. relies for servers, bandwidth, location and other services could also be negatively impacted by economic conditions that, in turn, could have a negative impact on ParagonCoin, Inc.’s operations or expenses. There can be no assurance, therefore, that current economic conditions or worsening economic conditions or a prolonged or recurring recession will not have a significant, adverse im-pact on ParagonCoin, Inc.’s business, financial condition and results of operations, and hence, the PARAGONCOIN platform and/or ability to structure, license, and launch the PARAGONCOIN future business lines. Any such circumstances would then correspond-ingly negatively impact the utility, liquidity, and/or trading price of the PRG Tokens.

The Company, ParagonCoin, Inc., or the PRG Tokens may be affected by newly imple-mented regulations

Cryptocurrency trading is generally unregulated worldwide, but numerous regulatory au-thorities across jurisdictions have been outspoken about considering the implementa-tion of regulatory regimes which govern cryptocurrency or cryptocurrency markets. Fur-thermore, while the US experiences a liberalization of cannabis regulations at the state level, cannabis remains illegal at the federal level. The Company or the PRG Tokens may be affected by newly implemented regulations relating to cryptocurrencies or cryp-tocurrency markets, and/or legal cannabis industry, including having to take measures to comply with such regulations, or having to deal with queries, notices, requests or en-forcement actions by regulatory authorities, which may come at a substantial cost and may also require substantial modifications to the PARAGONCOIN platform and/or the anticipated PARAGONCOIN future business lines. This may impact the appeal of the PAR-AGONCOIN platform and the anticipated PARAGONCOIN future business lines for users and result in decreased usage of the PARAGONCOIN platform and the PRG Tokens. Fur-ther, should the costs (financial or otherwise) of complying with such newly implement-ed regulations exceed a certain threshold, maintaining the PARAGONCOIN platform and structuring, licensing, and launching the PARAGONCOIN future business lines may no longer be commercially viable, and the Company or ParagonCoin, Inc. may opt to dis-continue the PARAGONCOIN platform, the anticipated PARAGONCOIN future business lines, and/or the PRG Tokens. Further, it is difficult to predict how or whether govern-ments or regulatory authorities may implement any changes to laws and regulations af-fecting distributed ledger technology and its applications, including the PARAGONCOIN platform, the anticipated PARAGONCOIN future business lines and the PRG Tokens.

43

2017

The Company or ParagonCoin, Inc. may also have to cease operations in a jurisdiction that makes it illegal to operate in such jurisdiction, or make it commercially unviable or undesirable to obtain the necessary regulatory approval(s) to operate in such jurisdiction. In scenarios such as the foregoing, the utility, liquidity, and/or trading price of PRG To-kens will be adversely affected or PRG Tokens may cease to be traded.

There may be unanticipated risks arising from the PRG Tokens

Cryptographic tokens such as the PRG Tokens are a relatively new and dynamic technology. In addition to the risks included in the above discussion of risk factors, there are other risks associated with your purchase, holding, and use of the PRG Tokens, including those that the Company and ParagonCoin, Inc. cannot anticipate. Such risks may further appear as unanticipated variations or combinations of the risks discussed above.

4. RISKS RELATING TO THE US FEDERAL LAWS AFFECTING THE LEGAL CANNABIS INDUSTRY

CERTAIN ACTIVITIES INVOLVING MARIJUANA REMAIN ILLEGAL UNDER US FEDERAL LAWS. SUCH ACTIVITIES INCLUDE BUT ARE NOT LIMITED TO: (A) DISTRIBUTION OF MARIJUANA TO MINORS, (B) TRANSPORTING MARIJUANA FROM STATES WHERE IT IS LEGAL TO OTHER STATES, (C) DRUGGED DRIVING AND OTHER ADVERSE PUBLIC HEALTH CONSEQUENCES, (D) GROWING MARIJUANA ON PUBLIC LANDS, (E) MARIJUANA POSSESSION OR USE ON FEDERAL PROPERTY, AND (F) OTHER CRIMINAL ACTIVITY OR VIOLENCE ASSOCIATED WITH THE SALE OF MARIJUA-NA. TO THE EXTENT THE COMPANY AND/OR PARAGON COIN, INC. MAY NOT PREVENT CER-TAIN OF ITS USERS FROM USING PRG TOKENS IN VIOLATION OF US FEDERAL LAW, IT MAY SUBJECT THE COMPANY AND/OR PARAGON COIN, INC. TO CIVIL AND/OR CRIMINAL LIABILITY AND THE UTILITY, LIQUIDITY, AND/OR TRADING PRICE OF PRG TOKENS WILL BE ADVERSELY AFFECTED OR PRG TOKENS MAY CEASE TO BE TRADED.

44

EXHIBIT 3

The Paragon ICO is Just Killing it as the Token Pre-Sale Sells Out

September 26, 2017 @ 10:30 pm By JD Alois

Paragon, the Cannabis oriented company and its affiliated Paragon Coin is killing it. The pre-sale of the Initial Coin Offering (ICO) launched several weeks back and sold out at 70,000,000 PRG. The remaining 30 million in PRG is open to the public now until mid-October.

So what exactly is Paragon and why all of the hype?

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The Paragon ICO is Just Killing it as the Token Pre-Sale Sells Out | Crowdfund Insider

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In brief Paragon wants to address a pressing issue

in the Cannabis space. While a growing number of states have legalized marijuana sales for either medical or recreational use, banks are still cautious or simply blocked from providing financial services to a drug the Feds view as not so legal. Because of this mismatch of states versus federal law, businesses in the Cannabis industry struggle to open bank accounts, pay for services and employees, or simply transfer money.

At some point in the future the regulatory environment may normalize but for now it is a patchwork of rules and laws that change the second you cross a state border. You are legal in one state and an outlaw in another. Paragon Coin or PRG seeks to become the digital currency of choice for all Cannabis based businesses removing the friction from this $150 billion industry that currently is largely cash based.

Paragon is the creation of Jessica VerSteeg, who is CEO of the company, and her husband Egor Lavrov who is the Chief Creative Officer. VerSteeg is clearly out in front on the ICO. A former model, Miss Iowa (2014) and participant in the Amazing Race reality show, VerSteeg is very comfortable in front of a camera. Lavrov, who is more behind the scenes but very much engaged, is a very successful entrepreneur. In his native Russia, Lavrov made millions of dollars back in the late 90’s before moving to the USA.

The Coin sale itself has already completed its

presale and, if my numbers are right, VerSteeg and her husband have really raked it in.

The ICO is a tiered offering with each layer making PRG a bit more expense. The Early Bird Presale sold at $0.75 = 1 PRG with a minimum purchase of $25,000. The next step (Presale) was at $0.85 and a $15,000 minimum. The Early Bird Presale launched at $0.90 and a $10,000 ticket. The actual Crowdsale starts at $1 and continues to march higher by $0.05 each day. As of last glance, you will need to pay $1.55 to purchase PRG. With the exception of the public Crowdsale, all of the prior rounds sold out. Any PRG that are not sold will be “burned”, thus the price of this crypto may benefit from low supply if demand is strong. Using round numbers, Paragon has raised over $50 million.

Recently while attending the Crowd Invest Summit, Crowdfund Insider had the chance to sit down with VerSteeg and Lavrov to ask them a few questions. The discussion was eye opening to say the least. The couple expects to close the ICO at around $80 million.

Lavrov said the token crowd-sale has been under constant attack on multiple fronts. DDOS and ransom scams have been a persistent problem – they even ended up paying someone posing as a promoter before they realized it was a fraud. Lavrov said that one scammer placed a negative post on Reddit and asked to be paid to remove it. There is a still a robust discussion on Reddit. Check it out, if you are interested. Lavrov said they were easy targets. And he is right. A high profile Cannabis related ICO managed by a former model and her Russian husband is better than fiction. Throw in the rapper “the Game” (who is promoting the offer and has invested in a dispensary) and you almost want to launch a new reality TV series (Keeping up with the Cannabis Crowd maybe?).

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So what will Paragon do with all that money once the ICO closes? Buy Real estate.

One of the problems with the Cannabis industry is that people do not want to touch it – and not just banks. They will buy property to create “green zones” where Cannabis related businesses can easily operate. The WeWork of Weed maybe?

As for the transactional use of PRG, the list of interested parties is growing. Law firms in the space are being paid in cash – just like other professional services. Dispensaries need to pay employees and producers. Growers international, the Amazon of Cannabis farming, has expressed interest in using PRG even while having their own crypto GRWI. A crypto for Cannabis kind of makes sense.

And what about the regulators? And is this a security?

Paragon says its bespoke coin is not an investment. It is a utility token and thus needs no regulation. You are not purchasing an investment in the company nor will PRG deliver returns from operations of Paragon. PRG is for transacting in a restricted industry that is largely cash based and thus adds value to the sector. Of course, anytime you have a token that is easily exchangeable into another crypto like BTC or ETH, along with the fact the number of PRG coins are expected to diminish at some point in the not so distant future, purchasers may experience a gain. Anyway, it is a great polemic.

Bloomberg commented on the Paragon ICO earlier this month stating the SEC was watching this ICO closely, along with other token offers. But the article also said Paragon has not been accused of any wrongdoing by the Feds “or triggered any SEC action.”

As far as ICO’s go, if Paragon hits its

hard stop of 100 million tokens sold it will be a huge hit for the company. Even where the offer stands now it is pretty incredible. The Founders and other insiders will receive a substantial allocation of PRG which they are prohibited from selling more than 20% the first year, but still a nice gain. Paragon does expect to sell another 100 million tokens at some point in the future so round two is already in the offing.

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The Paragon ICO is Just Killing it as the Token Pre-Sale Sells Out | Crowdfund Insider

https://www.crowdfundinsider.com/2017/09/122405-paragon-ico-just-killing-token-pre-sale-sells/

EXHIBIT 4

ParagonThe history of the cannabis industry is one fraught with fragmentation, distrust, and illicitness, but, happily, this industry is becoming more and more legitimate with the help of platforms such as Paragon. Paragon seeks to bridge the gap between and connect the links within the cannabis industry through the use of blockchain-based smart contracts. This technology will shift the cannabis community from marginalized to the mainstream. Paragon's goal is the full legalization of cannabis, and the means to that end involve a blockchain-backed network that will enable secure, transparent record-keeping for medical cards, doctor registries, and prescriptions. Paragon's protocol will also log data about cannabis products, such as their origin, time of harvest, sustainability, organic status, CBD/THC content, and more. Last but not least, ParagonSpaces will be used as community workspaces to inspire like-minded individuals to work together and solve problems within the cannabis industry.

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Page 1 of 5Paragon - ICO

1/30/2018https://top10bestupcomingicos.com/partners/paragon/

Hype rate: VERY HIGH Risk rate: HIGH

Invest rate: LOW Category: Medicine

Description: A decentralised

cannabis centered organization

ParagonSpace and

ParagonOnline.

Founded: US

Whitepaper: 

https://paragoncoin.com/whitepaper.pdf

Ticker: PRG Token type: ERC20

Price: 1 PRG = 1$ Total Tokens: 200,000,000

Available for Token Sale: 50% Fundraising Goal: $100,000,000

Paragon (Social)

$74,647,589 OF $86,000,000 (87%)

11 days left

Visit Site

WEBSITE

Paragon Coin (Social)

Info & Analysis

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Page 2 of 5Paragon - ICO

1/30/2018https://top10bestupcomingicos.com/partners/paragon/

Token Sale Start Date: 15 Sep

2017

Token Sale End Date: 15 Oct

2017

Accepts: ETH, BTC Bonus: 5% For First 5 Days

Bounty Program: Referrals Social Activity Level: Extremely

High

Registered Company:

ParagonCoin, INC.

Escrow: Yes

Role of Token: Utility Exit to the Exchanges: Currently

on HITBTC

Team Info: USA - 12 Members Team Active: June 2017

FeaturesThe Paragon project team will create a chain of fully-equipped, high-tech, ParagonCoin Centers in the twenty in which cannabis is legal. These ParagonCoin Centers will include:

• A professional cooperative space for cannabis-related work• A creative hub for journalists, scientists, investors,

developers, doctors, marketers, fintech specialists, lawyers, startups, and entrepreneurs operating in the cannabis space

• Business advisors and professional mentors • Conference and event venues • Research and educational environments for generating and

reviewing information about the legalized cannabis industry• Audio/Video/Photography studio for podcasts, shoots, and

videos about cannabis products • A social venue for Paragon Coin Club members to discuss

ideas• A web-based and in-app reservation system for events with

instant PRG payment

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Page 3 of 5Paragon - ICO

1/30/2018https://top10bestupcomingicos.com/partners/paragon/

• Dashboard for membership registration, networking, transaction history, scheduling, event lists, and other functions.

• PRG checkout process for purchases made at the cafe, which will have a menu

• Specialized retail and SPA services with CBD products located at a flagship location that uses PRG payment and tipping (the retail of these cannabis products at SPAs will be limited to jurisdictions in which such products are legalized)

Token SalesTotal supply of tokens: 200,000,000 (two-hundred million)100,000,000 (one-hundred million) tokens for Stage 1 of the Token Crowdsale, or 50% of all tokens.

The introductory token price will be set at $1.00 when the tokens go on sale on September 15. During the first five hours of the Token Crowdsale, we will offer a 5%, “early bird” discount. The token price will remain at $1 for the remainder of the 24 hours. It will increase $0.05 (five cents) each 24 hours for thirty days, or until all tokens are sold.

50,000,000 (fifty million) tokens are reserved for Stage 2  of the Token Crowdsale, or 25% of all tokens.

Stage 2 will happen no earlier than the year 2021. All tokens are going to be sold at market price, instead of the previous fixed, $1 (USD) value.

The remaining 50,000,000 (fifty million) PRG will be held in reserve. Note that all the percentages below will be adjusted to reflect the amount raised. For example, if we sell 70M of 100M tokens, the numbers listed below multiplied by 0.7.

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Page 4 of 5Paragon - ICO

1/30/2018https://top10bestupcomingicos.com/partners/paragon/

Paragon Reserve Fund: 40,000,000 (forty million) PRGCommunity-Controlled Reserve: 10,000,000 (ten million) PRG

Paragon Visit Site

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Page 5 of 5Paragon - ICO

1/30/2018https://top10bestupcomingicos.com/partners/paragon/

EXHIBIT 5

EXHIBIT 6

1/30/2018 SEC.gov | Statement on Cryptocurrencies and Initial Coin Offerings

https://www.sec.gov/news/public-statement/statement-clayton-2017-12-11 1/7

Statement on Cryptocurrencies and InitialCoin Offerings

Dec. 11, 2017

The world’s social media platforms and financial markets are abuzz about cryptocurrencies and “initial coinofferings” (ICOs). There are tales of fortunes made and dreamed to be made. We are hearing the familiar refrain,“this time is different.”

The cryptocurrency and ICO markets have grown rapidly. These markets are local, national and international andinclude an ever-broadening range of products and participants. They also present investors and other marketparticipants with many questions, some new and some old (but in a new form), including, to list just a few:

Is the product legal? Is it subject to regulation, including rules designed to protect investors? Does theproduct comply with those rules?

Is the offering legal? Are those offering the product licensed to do so?

Are the trading markets fair? Can prices on those markets be manipulated? Can I sell when I want to?

Are there substantial risks of theft or loss, including from hacking?

The answers to these and other important questions often require an in-depth analysis, and the answers will differdepending on many factors. This statement provides my general views on the cryptocurrency and ICO markets[1]and is directed principally to two groups:

“Main Street” investors, and

Market professionals – including, for example, broker-dealers, investment advisers, exchanges, lawyersand accountants – whose actions impact Main Street investors.

Considerations for Main Street Investors

A number of concerns have been raised regarding the cryptocurrency and ICO markets, including that, asthey are currently operating, there is substantially less investor protection than in our traditionalsecurities markets, with correspondingly greater opportunities for fraud and manipulation.

Investors should understand that to date no initial coin offerings have been registered with the SEC. The SEC alsohas not to date approved for listing and trading any exchange-traded products (such as ETFs) holdingcryptocurrencies or other assets related to cryptocurrencies.[2] If any person today tells you otherwise, beespecially wary.

We have issued investor alerts, bulletins and statements on initial coin offerings and cryptocurrency-relatedinvestments, including with respect to the marketing of certain offerings and investments by celebrities and others.[3] Please take a moment to read them. If you choose to invest in these products, please ask questions anddemand clear answers. A list of sample questions that may be helpful is attached.

SEC Chairman Jay Clayton

Public Statement

1/30/2018 SEC.gov | Statement on Cryptocurrencies and Initial Coin Offerings

https://www.sec.gov/news/public-statement/statement-clayton-2017-12-11 2/7

As with any other type of potential investment, if a promoter guarantees returns, if an opportunity sounds too goodto be true, or if you are pressured to act quickly, please exercise extreme caution and be aware of the risk thatyour investment may be lost.

Please also recognize that these markets span national borders and that significant trading may occur onsystems and platforms outside the United States. Your invested funds may quickly travel overseaswithout your knowledge. As a result, risks can be amplified, including the risk that market regulators,such as the SEC, may not be able to effectively pursue bad actors or recover funds.

To learn more about these markets and their regulation, please read the “Additional Discussion ofCryptocurrencies, ICOs and Securities Regulation” section below.

Considerations for Market Professionals

I believe that initial coin offerings – whether they represent offerings of securities or not – can be effective ways forentrepreneurs and others to raise funding, including for innovative projects. However, any such activity thatinvolves an offering of securities must be accompanied by the important disclosures, processes and other investorprotections that our securities laws require. A change in the structure of a securities offering does not change thefundamental point that when a security is being offered, our securities laws must be followed.[4] Said another way,replacing a traditional corporate interest recorded in a central ledger with an enterprise interest recorded through ablockchain entry on a distributed ledger may change the form of the transaction, but it does not change thesubstance.

I urge market professionals, including securities lawyers, accountants and consultants, to read closely theinvestigative report we released earlier this year (the “21(a) Report”)[5] and review our subsequent enforcementactions.[6] In the 21(a) Report, the Commission applied longstanding securities law principles to demonstrate thata particular token constituted an investment contract and therefore was a security under our federal securitieslaws. Specifically, we concluded that the token offering represented an investment of money in a commonenterprise with a reasonable expectation of profits to be derived from the entrepreneurial or managerial efforts ofothers.

Following the issuance of the 21(a) Report, certain market professionals have attempted to highlight utilitycharacteristics of their proposed initial coin offerings in an effort to claim that their proposed tokens or coins are notsecurities. Many of these assertions appear to elevate form over substance. Merely calling a token a “utility”token or structuring it to provide some utility does not prevent the token from being a security. Tokens andofferings that incorporate features and marketing efforts that emphasize the potential for profits based on theentrepreneurial or managerial efforts of others continue to contain the hallmarks of a security under U.S. law. Onthis and other points where the application of expertise and judgment is expected, I believe thatgatekeepers and others, including securities lawyers, accountants and consultants, need to focus on theirresponsibilities. I urge you to be guided by the principal motivation for our registration, offering process anddisclosure requirements: investor protection and, in particular, the protection of our Main Street investors.

I also caution market participants against promoting or touting the offer and sale of coins without first determiningwhether the securities laws apply to those actions. Selling securities generally requires a license, andexperience shows that excessive touting in thinly traded and volatile markets can be an indicator of“scalping,” “pump and dump” and other manipulations and frauds. Similarly, I also caution those whooperate systems and platforms that effect or facilitate transactions in these products that they may be operatingunregistered exchanges or broker-dealers that are in violation of the Securities Exchange Act of 1934.

On cryptocurrencies, I want to emphasize two points. First, while there are cryptocurrencies that do not appear tobe securities, simply calling something a “currency” or a currency-based product does not mean that it is not asecurity. Before launching a cryptocurrency or a product with its value tied to one or more cryptocurrencies, itspromoters must either (1) be able to demonstrate that the currency or product is not a security or (2) comply withapplicable registration and other requirements under our securities laws. Second, brokers, dealers and othermarket participants that allow for payments in cryptocurrencies, allow customers to purchase cryptocurrencies on

1/30/2018 SEC.gov | Statement on Cryptocurrencies and Initial Coin Offerings

https://www.sec.gov/news/public-statement/statement-clayton-2017-12-11 3/7

margin, or otherwise use cryptocurrencies to facilitate securities transactions should exercise particular caution,including ensuring that their cryptocurrency activities are not undermining their anti-money laundering and know-your-customer obligations.[7] As I have stated previously, these market participants should treat paymentsand other transactions made in cryptocurrency as if cash were being handed from one party to the other.

Additional Discussion of Cryptocurrencies, ICOs and Securities Regulation

Cryptocurrencies. Speaking broadly, cryptocurrencies purport to be items of inherent value (similar, for instance,to cash or gold) that are designed to enable purchases, sales and other financial transactions. They are intendedto provide many of the same functions as long-established currencies such as the U.S. dollar, euro or Japaneseyen but do not have the backing of a government or other body. Although the design and maintenance ofcryptocurrencies differ, proponents of cryptocurrencies highlight various potential benefits and features of them,including (1) the ability to make transfers without an intermediary and without geographic limitation, (2) finality ofsettlement, (3) lower transaction costs compared to other forms of payment and (4) the ability to publicly verifytransactions. Other often-touted features of cryptocurrencies include personal anonymity and the absence ofgovernment regulation or oversight. Critics of cryptocurrencies note that these features may facilitate illicit tradingand financial transactions, and that some of the purported beneficial features may not prove to be available inpractice.

It has been asserted that cryptocurrencies are not securities and that the offer and sale of cryptocurrencies arebeyond the SEC’s jurisdiction. Whether that assertion proves correct with respect to any digital asset that islabeled as a cryptocurrency will depend on the characteristics and use of that particular asset. In any event, it isclear that, just as the SEC has a sharp focus on how U.S. dollar, euro and Japanese yen transactions affect oursecurities markets, we have the same interests and responsibilities with respect to cryptocurrencies. This extends,for example, to securities firms and other market participants that allow payments to be made in cryptocurrencies,set up structures to invest in or hold cryptocurrencies, or extend credit to customers to purchase or holdcryptocurrencies.

Initial Coin Offerings. Coinciding with the substantial growth in cryptocurrencies, companies and individualsincreasingly have been using initial coin offerings to raise capital for their businesses and projects. Typically theseofferings involve the opportunity for individual investors to exchange currency such as U.S. dollars orcryptocurrencies in return for a digital asset labeled as a coin or token.

These offerings can take many different forms, and the rights and interests a coin is purported to provide theholder can vary widely. A key question for all ICO market participants: “Is the coin or token a security?” Assecurities law practitioners know well, the answer depends on the facts. For example, a token that represents aparticipation interest in a book-of-the-month club may not implicate our securities laws, and may well be anefficient way for the club’s operators to fund the future acquisition of books and facilitate the distribution of thosebooks to token holders. In contrast, many token offerings appear to have gone beyond this construct and aremore analogous to interests in a yet-to-be-built publishing house with the authors, books and distribution networksall to come. It is especially troubling when the promoters of these offerings emphasize the secondary markettrading potential of these tokens. Prospective purchasers are being sold on the potential for tokens to increase invalue – with the ability to lock in those increases by reselling the tokens on a secondary market – or to otherwiseprofit from the tokens based on the efforts of others. These are key hallmarks of a security and a securitiesoffering.

By and large, the structures of initial coin offerings that I have seen promoted involve the offer and sale ofsecurities and directly implicate the securities registration requirements and other investor protection provisions ofour federal securities laws. Generally speaking, these laws provide that investors deserve to know what they areinvesting in and the relevant risks involved.

I have asked the SEC’s Division of Enforcement to continue to police this area vigorously and recommendenforcement actions against those that conduct initial coin offerings in violation of the federal securities laws.

Conclusion

1/30/2018 SEC.gov | Statement on Cryptocurrencies and Initial Coin Offerings

https://www.sec.gov/news/public-statement/statement-clayton-2017-12-11 4/7

We at the SEC are committed to promoting capital formation. The technology on which cryptocurrencies and ICOsare based may prove to be disruptive, transformative and efficiency enhancing. I am confident that developmentsin fintech will help facilitate capital formation and provide promising investment opportunities for institutional andMain Street investors alike.

I encourage Main Street investors to be open to these opportunities, but to ask good questions, demand clearanswers and apply good common sense when doing so. When advising clients, designing products and engagingin transactions, market participants and their advisers should thoughtfully consider our laws, regulations andguidance, as well as our principles-based securities law framework, which has served us well in the face of newdevelopments for more than 80 years. I also encourage market participants and their advisers to engage with theSEC staff to aid in their analysis under the securities laws. Staff providing assistance on these matters remainavailable at FinTech@sec.gov .

Sample Questions for Investors Considering a Cryptocurrency or ICO Investment Opportunity[8]

Who exactly am I contracting with?

Who is issuing and sponsoring the product, what are their backgrounds, and have they provided afull and complete description of the product? Do they have a clear written business plan that Iunderstand?

Who is promoting or marketing the product, what are their backgrounds, and are they licensed to sellthe product? Have they been paid to promote the product?

Where is the enterprise located?

Where is my money going and what will be it be used for? Is my money going to be used to “cash out”others?

What specific rights come with my investment?

Are there financial statements? If so, are they audited, and by whom?

Is there trading data? If so, is there some way to verify it?

How, when, and at what cost can I sell my investment? For example, do I have a right to give the token orcoin back to the company or to receive a refund? Can I resell the coin or token, and if so, are there anylimitations on my ability to resell?

If a digital wallet is involved, what happens if I lose the key? Will I still have access to my investment?

If a blockchain is used, is the blockchain open and public? Has the code been published, and has therebeen an independent cybersecurity audit?

Has the offering been structured to comply with the securities laws and, if not, what implications will thathave for the stability of the enterprise and the value of my investment?

What legal protections may or may not be available in the event of fraud, a hack, malware, or a downturn inbusiness prospects? Who will be responsible for refunding my investment if something goes wrong?

If I do have legal rights, can I effectively enforce them and will there be adequate funds to compensate me ifmy rights are violated?

[1] This statement is my own and does not reflect the views of any other Commissioner or the Commission. Thisstatement is not, and should not be taken as, a definitive discussion of applicable law, all the relevant risks withrespect to these products, or a statement of my position on any particular product. Additionally, this statement isnot a comment on any particular submission, in the form of a proposed rule change or otherwise, pending beforethe Commission.

1/30/2018 SEC.gov | Statement on Cryptocurrencies and Initial Coin Offerings

https://www.sec.gov/news/public-statement/statement-clayton-2017-12-11 5/7

[2] The CFTC has designated bitcoin as a commodity. Fraud and manipulation involving bitcoin traded in interstatecommerce are appropriately within the purview of the CFTC, as is the regulation of commodity futures tied directlyto bitcoin. That said, products linked to the value of underlying digital assets, including bitcoin and othercryptocurrencies, may be structured as securities products subject to registration under the Securities Act of 1933or the Investment Company Act of 1940.

[3] Statement on Potentially Unlawful Promotion of Initial Coin Offerings and Other Investments by Celebrities andOthers (Nov. 1, 2017), available at https://www.sec.gov/news/public-statement/statement-potentially-unlawful-promotion-icos; Investor Alert: Public Companies Making ICO-Related Claims (Aug. 28, 2017), available athttps://www.sec.gov/oiea/investor-alerts-and-bulletins/ia_icorelatedclaims; Investor Bulletin: Initial Coin Offerings(July 25, 2017), available at https://www.sec.gov/oiea/investor-alerts-and-bulletins/ib_coinofferings; Investor Alert: Bitcoin and Other Virtual Currency-Related Investments (May 7, 2014), available athttps://www.investor.gov/additional-resources/news-alerts/alerts-bulletins/investor-alert-bitcoin-other-virtual-currency; Investor Alert: Ponzi Schemes Using Virtual Currencies (July 23, 2013), available athttps://www.sec.gov/investor/alerts/ia_virtualcurrencies.pdf.

[4] It is possible to conduct an ICO without triggering the SEC’s registration requirements. For example, just aswith a Regulation D exempt offering to raise capital for the manufacturing of a physical product, an initial coinoffering that is a security can be structured so that it qualifies for an applicable exemption from the registrationrequirements.

[5] Report of Investigation Pursuant to Section 21(a) of the Securities Exchange Act of 1934: The DAO (July 25,2017), available at https://www.sec.gov/litigation/investreport/34-81207.pdf.

[6] Press Release, Company Halts ICO After SEC Raises Registration Concerns (Dec. 11, 2017), available athttps://www.sec.gov/news/press-release/2017-227; Press Release, SEC Emergency Action Halts ICO Scam (Dec.4, 2017), available at https://www.sec.gov/news/press-release/2017-219; Press Release, SEC Exposes Two InitialCoin Offerings Purportedly Backed by Real Estate and Diamonds (Sept. 29, 2017), available athttps://www.sec.gov/news/press-release/2017-185-0.

[7] I am particularly concerned about market participants who extend to customers credit in U.S. dollars – arelatively stable asset – to enable the purchase of cryptocurrencies, which, in recent experience, have proven tobe a more volatile asset.

[8] This is not intended to represent an exhaustive list. Please also see the SEC investor bulletins, alerts andstatements referenced in note 3 of this statement.

1/30/2018 SEC.gov | Statement on Cryptocurrencies and Initial Coin Offerings

https://www.sec.gov/news/public-statement/statement-clayton-2017-12-11 6/7

1/30/2018 SEC.gov | Statement on Cryptocurrencies and Initial Coin Offerings

https://www.sec.gov/news/public-statement/statement-clayton-2017-12-11 7/7

EXHIBIT 7

1/30/2018 Our first Paragon Space will be opening in LA!

https://paragoncoin.com/blog/our-first-paragon-space-will-be-opening-in-la 1/2

December 05th, 2017

OUR FIRST PARAGON SPACE WILL BE OPENING IN LA (https://plus.google.com/share?url=https://paragoncoin.com/blog/our-�rst-paragon-space-will-be-opening-in-la)

(https://twitter.com/home?status=https://paragoncoin.com/blog/our-�rst-paragon-space-will-be-opening-in-la)

(https://www.facebook.cu=https://paragoncoin.cparagon-space-will-be-o

Paragonians!

Our Paragon Spaces sit at the heart of our business model. The concept for a Paragon Space was derived from the persistent lack of working spacesfor entrepreneurs and employees working in and for the cannabis industry. 

As a result, we at Paragon want to address that demand with a real high-tech solution, our very own Paragon Space. These buildings will be accessiblein 2018 for all to rent a desk, o�ce or a conference area - there will also be a cafe for all your food and drinks needs. 

So why rent at Paragon Space? We will be below the market average and o�er a highly competitive pricing structure for those who wish to work at ourSpace - but most importantly, we will only accept PRG tokens in exchange for desk space, drinks and everything else. 

So whats next?

The �rst step is done - de�ning the location of the very �rst Paragon Space. This �agship location was voted on by the community, with Los Angelessecuring the �rst spot.

Step two is to acquire a building for Paragon Space to utilize. A building is only a building until you make it something more, and that will take sometime. Recently, the Paragon exec team signed LOI’s with several real estate agents in the area and will continue viewing potential locations for theParagon Space �agship.

Further, Paragon has signed long term agreements with advisor Bakary Soumare, owner of the Pitch, a leading construction company. We have alsosigned a long term agreement with Robert Escobar, a team member who is one of the top operations specialists in the country. With the help of bothBakary and Robert, we will ensure that the �rst Paragon Space is streamlined, high tech, e�cient and simply stunning!

If you want to follow the very latest updates from Paragon, including those about our Paragon Spaces - please sign up for our newsletter and join ourTelegram channel!

Best regards,

Paragon Team

(https://paragoncoin.com/login)

1/30/2018 Our first Paragon Space will be opening in LA!

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EXHIBIT 8

Digital Money #CuttingEdgeSEP 15, 2017 @ 06:00 AM 10,014

/ /

The Iowa Beauty Queen, The RussianTechnocrat And Their Cannabis Crypto Launch

Chitra Ragavan , CONTRIBUTORFULL BIO

Opinions expressed by Forbes Contributors are their own.

The cannabis industry, one of the fastest growing sectors in the economy today, alsohas some of the toughest banking problems. Put simply, it is buried in cash, thanksto the illegality of the drug, the crush of laws and banks shying away from any andall weed proceeds. Blockchain and cannabis industry watchers believe thatcryptocurrencies could be a game changer for the marijuana sector. In recent years,a number of weed coins have proliferated, including HempCoin, CannabisCoin,DopeCoin, and PotCoin, each taking a slightly different approach to solving the cashdilemma. “Once, virtual currencies and weed belonged together on the dark web;”said Lionel Laurent in a recent Bloomberg Businessweek article, “Now, they're beingpitched as asset classes on track for mega-growth.”

Today, Paragon, a company formed by model and Iowa beauty queen JessicaVerSteeg and backed by her millionaire Russian technocrat husband, Egor Lavrov,will launch an ambitious but controversial Initial Coin Offering (ICO) for a newcryptocurrency, ParagonCoin (PRG) to facilitate cannabis related transactions onthe company’s soon to launch blockchain platform. Both cannabis and blockchainindustry experts say that if successful, the platform could create transparency in thecannabis supply chain and create much-needed standards in this shady, largelyillicit sector. “There’s definitely a need for the platform that they’re proposing in thecannabis industry,” says Teemu Paivinen, an entrepreneur and investor at ZeppelinSolutions, a blockchain consulting and security audits firm. “And I think there's abig opportunity there.”

But although backed by some veteran cryptocurrency advisors and partners, theParagonCoin ICO has generated considerable controversy as well. Critics on socialmedia forums have said the token is overhyped and overvalued. One Redditordescribed the token launch as nothing but a “blatant cash grab.” Critics also say thecompany lacks transparency and accountability. “And this might be the reason some

people have been slugging them up pretty substantially in the social media,” saysSimone Giacomelli, CEO and founder of Vulpem Ventures, “Because wheneverthere’s not enough detail or clarity, some of the more detail oriented auditors mightflag this as a lack of credibility.” VerSteeg and Lavrov say their motives aretransparent and above board. “We don’t need money in our own lives. We don’tneed fame,” says VerSteeg. “Out of our own desire to help, we decided to make it forthe community.”

[Ed note: Investing in cryptocoins or tokens is highly speculative, and the market islargely unregulated. Anyone considering it should be prepared to lose their entireinvestment.]

Cash Crop

Currently, because use, sale and possession of cannabis are illegal under federal law,every aspect of the industry is cash-based because, by law, the proceeds can’t be putin a bank. That means cash payments for growers, buyers, sellers, PR firms, lawyers,accountants, real estate agents, landlords and delivery people. Even taxes are paid incash. VerSteeg’s and Lavrov’s goal is to sop up cash from cannabis related services.“If we move just 1% of the industry’s cash into PRG,” says Lavrov quietly, “You canimagine the value. It’s a $100 billion industry.”

In addition to the cash problem, lack of regulation has led to inconsistencies in labpurity results, difficulties in patient verifications, and numerous data integrityproblems. “You have no way of trusting the information that you are being fed, so tospeak,” says David Sonstebo, a futurist and founder of IOTA. The non-profitfoundation has built a next-gen distributed ledger technology called Tangle, whichParagon will eventually be using.

A blockchain platform could solve these problems. A blockchain is a distributedledger that creates immutable, tamper-proof records of transactions, and smart

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contracts to enable logic and automation. “With the sequences in place, you canprove the provenance from seed to weed to however you ingest it,” Sonstebo says,“And I think that is very important in order for cannabis to be accepted as alegitimate crop instead of just being like this drug for stoners.”

A New Ecosystem

The Paragon blockchain platform is designed to connect cannabis players throughan open-source blockchain network with different data access permissions fordifferent participants. Because of federal patient privacy rules, patient data would bestored off the blockchain. But verification of their data would take place on thedistributed ledger. “You cannot see my medical history,” says VerSteeg. “But whatyou can see is my doctor’s name, my expiration date, and like a blue check thingsaying this is a valid ID saying I can buy medical marijuana.”

Paragon members could use the PRG tokens to pay for all cannabis services andbenefits except buying or selling of the drug, which would be illegal, says Lavrov. Infact, Lavrov says, if anyone attempts to use PRG to buy or sell cannabis, Paragon willreport them to the authorities. “Our business is not touching the substance itself in

Chitra Ragavan Photography

Lavrov and VerSteeg at the Yahoo! News Studio.

any way,” Lavrov says, “So even though we are a cannabis-related startup, we’re notbuying, not selling, not creating a market for cannabis itself.”

Members could also use PRG for casting votes on the locations of Paragon sharedoffice spaces and priorities for spending community reserve funds. “They are notdoing this ad hoc, hey, let’s get a quick money grab,” says IOTA’s Sonstebo. “Bydoing it the way they are doing it, at least as defined in the white paper, they arecreating a very collective community effort around it, and I believe that’s a very goodapproach.”

Terrible Tragedy

The Paragon blockchain evolved from a personal tragedy that touched VerSteegdeeply. In 2015, VerSteeg lost her boyfriend, Tyler Sash to an overdose ofpainkillers.

Sash was a former standout safety for the University of Iowa who won a Super Bowlduring his rookie season with the New York Giants. He was always playing in painfrom injuries, concussions and chronic shoulder problems and asked VerSteeg if hecould smoke weed to prevent addiction to painkillers, she recalls. “And I said, ‘No,Ty, you have to trust these NFL doctors; you’ll never get addicted,” says VerSteeg.

But after suffering five concussions and being cut from the Giants roster before the2013 opener, Sash returned home to Iowa where he began to show bizarresymptoms and erratic behavior, which VerSteeg discovered stemmed fromprescription opioids. “And I had this exact flashback to that moment in New Jersey,”recalls VerSteeg, “when he asked if he could smoke weed instead of becomingaddicted.”

The Drug Enforcement Administration says the current weight of evidence showsthat smoked marijuana has a “high potential for abuse, and has no accepted medicalvalue” and that there is a “general lack of accepted safety for its use even undermedical supervision.” But despite the lack of rigorous testing marijuana is believedby advocates to have potential benefits for conditions including chemotherapy,chronic pain and muscle spasms.

Sash’s addiction broke up their relationship and VerSteeg moved to San Francisco.On Sept. 8, 2015, Sash, then 27, was found dead at his home in Oskaloosa, Iowa. “Inever made it to see him,” VerSteeg says. According to news reports, the medicalexaminer ruled an accidental overdose of a mix of two highly addictive painkillers,hydrocodone and methadone. His family later released results of tests performed onhis brain confirming that Sash had advanced Chronic Traumatic Encephalopathy,(C.T.E.) -- a degenerative brain disease that affects many football players.

Sash died unaware that VerSteeg herself had begun to both experiment with and sellcannabis. After his death, she launched her company, AUBox nationwide, andbecame a proponent of standardizing the medicinal marijuana supply chain. “Rightnow, regulations are different from county to county, state to state, let alone countryto country,” VerSteeg says. “So once you can prove that it’s the same all around and

Jessica VerSteeg

VerSteeg with Sash in their happy days.

it all meets up to be the exact same standard, people will start to feel comfortablewith it and it takes away this bad dark image that it has.”

VerSteeg has the backing of her husband Lavrov, who became a tech millionaire inMoscow at age 16 and is now a serial entrepreneur and venture capitalist. Lavrovsays Paragon’s value lies in building a blockchain cannabis ecosystem that fills keygaps, including the dearth of shared office spaces. Currently, cannabis workspacesare prohibitively expensive and often tough, if not impossible to find, given thefederal law and so-called Green Zone local zoning restrictions. “So what we areplanning to do is not an existing business model,” says Lavrov, “But we are veryinnovative space and we are innovating the business model as well.”

A Real Kerfuffle

But not everyone is a fan of the Paragon paradigm. VerSteeg and Lavrov have beenexcoriated on Reddit and other social media forums, largely anonymously, for whatcritics describe as an overvalued token used to fund pricey real estate projects.Paragon plans to issue a total of 200 million tokens, but 100 million will be held inreserve for various purposes including a future round and the remaining 100 milliontokens are being sold in the current round at $1 per token. Critics on Reddit havecomplained that the token price is "10x" over inflated compared to other tokens. ButLavrov says these naysayers are making “baseless” accusations because they don't

Michelle Monique

VerSteeg modeling her product.

know how to evaluate market capitalization of cryptocurrency. “They are justcomparing a one dollar token to a token that is just 0.26 cents that is Ripple,” Lavrovsays. “But they don’t understand that we only have 200 million tokens total andRipple has over a billion.”

In the lead up to the launch, Paragon also has gotten into a real kerfuffle withRedditors who allege the company used fake online users to build support and botsfor “brigading,” or manipulating group votes to censor critics and even deletenegative posts during online forums. VerSteeg and Lavrov deny the broaderallegations. Lavrov admits that a Paragon employee deleted one post and that headmonished his team over the incident.

Lavrov says he and VerSteeg are also battling 24/7 DDOS attempts on Paragon’snetwork and that they have been the victims of a number of attempted scams andcryptocurrency extortion attempts. They believe the negative publicity on Redditand related incidents can be traced back to those alleged attempts. “They areprofessional criminals, they are manipulating facts,” says Lavrov. “None of theaccusations are real.”

This week, after receiving a second alleged ransom demand which Lavrov defiantlyposted on Medium, he and VerSteeg reported the incident to the San Franciscopolice department’s Financial Crimes Unit and they’ve also contacted the FBI,according to Paragon’s attorney, Julian Zegelman.

Crypto Conundrum

Cryptocurrency veterans Paivinen and Giacomelli say that it’s surprising andpuzzling that Paragon has gotten into so much hot water, given the company'simpressive roster of advisory board members and partners, including IOTA andICOPromo. Dylan Dewdney, Co-founder and Principal at Harbour, a Canadianblockchain governance protocol company says that Paragon’s core businessproposition is also sound. “Having supply chain verification is definitely the way togo,” Dewdney says. But he believes that some of the add ons in the proposal, such asthe Starbucks-style shared office spaces, may have exposed Paragon to the intensecriticism. “It sounds nice, but it's not necessarily needed,” he says. “And I think itdevalues your business proposition from the standpoint of doing this on ablockchain.”

All these controversies have detracted from the fact that VerSteeg’s blockchainepiphany could have implications for the entire $2.4 trillion agricultural sectors.“Proving that someone has abused the amount of pesticides and herbicides is very

important,” says IOTA’s Sonstebo, “and also being able to prove that something isgrown with a certain soil, with a certain amount of pH value, that you can optimizethe crop itself.”

And Sonstebo notes that though Paragon’s immediate focus is the cannabis cropitself, the true value of the platform could eventually be all the underlying data.“We’re living in the era of big data. And data is the new oil, so to speak,” saysSonstebo. “So indeed, I do believe that’s a completely new revenue stream thatpeople haven't even thought of.”

Given the controversies and daunting legal, technical and community hurdles, it'sanyone's guess whether VerSteeg and Lavrov can generate enough support and ICOhorsepower to fulfill their stated vision of a transparent cannabis supply chain builtentirely on a blockchain. Alternately, there's also the possibility that ParagonCoincould become just another weed coin in an already over proliferated field.

Learn more about me and check out my other articles here. Follow me here.

EXHIBIT 9

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SECURITIES AND EXCHANGE COMMISSION

SECURITIES EXCHANGE ACT OF 1934

Release No. 81207 / July 25, 2017

Report of Investigation Pursuant to Section 21(a) of the Securities Exchange Act of 1934: The DAO

I. Introduction and Summary

The United States Securities and Exchange Commission’s (“Commission”) Division of Enforcement (“Division”) has investigated whether The DAO, an unincorporated organization; Slock.it UG (“Slock.it”), a German corporation; Slock.it’s co-founders; and intermediaries may have violated the federal securities laws. The Commission has determined not to pursue an enforcement action in this matter based on the conduct and activities known to the Commission at this time.

As described more fully below, The DAO is one example of a Decentralized Autonomous Organization, which is a term used to describe a “virtual” organization embodied in computer code and executed on a distributed ledger or blockchain. The DAO was created by Slock.it and Slock.it’s co-founders, with the objective of operating as a for-profit entity that would create and hold a corpus of assets through the sale of DAO Tokens to investors, which assets would then be used to fund “projects.” The holders of DAO Tokens stood to share in the anticipated earnings from these projects as a return on their investment in DAO Tokens. In addition, DAO Token holders could monetize their investments in DAO Tokens by re-selling DAO Tokens on a number of web-based platforms (“Platforms”) that supported secondary trading in the DAO Tokens.

After DAO Tokens were sold, but before The DAO was able to commence funding projects, an attacker used a flaw in The DAO’s code to steal approximately one-third of The DAO’s assets. Slock.it’s co-founders and others responded by creating a work-around whereby DAO Token holders could opt to have their investment returned to them, as described in more detail below.

The investigation raised questions regarding the application of the U.S. federal securities laws to the offer and sale of DAO Tokens, including the threshold question whether DAO Tokens are securities. Based on the investigation, and under the facts presented, the Commission has determined that DAO Tokens are securities under the Securities Act of 1933 (“Securities Act”) and the Securities Exchange Act of 1934 (“Exchange Act”).1 The Commission deems it appropriate and in the public interest to issue this report of investigation (“Report”) pursuant to

1 This Report does not analyze the question whether The DAO was an “investment company,” as defined under Section 3(a) of the Investment Company Act of 1940 (“Investment Company Act”), in part, because The DAO never commenced its business operations funding projects. Those who would use virtual organizations should consider their obligations under the Investment Company Act.

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Section 21(a) of the Exchange Act2 to advise those who would use a Decentralized Autonomous Organization (“DAO Entity”), or other distributed ledger or blockchain-enabled means for capital raising, to take appropriate steps to ensure compliance with the U.S. federal securities laws. All securities offered and sold in the United States must be registered with the Commission or must qualify for an exemption from the registration requirements. In addition, any entity or person engaging in the activities of an exchange must register as a national securities exchange or operate pursuant to an exemption from such registration.

This Report reiterates these fundamental principles of the U.S. federal securities laws and describes their applicability to a new paradigm—virtual organizations or capital raising entities that use distributed ledger or blockchain technology to facilitate capital raising and/or investment and the related offer and sale of securities. The automation of certain functions through this technology, “smart contracts,”3 or computer code, does not remove conduct from the purview of the U.S. federal securities laws.4 This Report also serves to stress the obligation to comply with the registration provisions of the federal securities laws with respect to products and platforms involving emerging technologies and new investor interfaces.

II. Facts

A. Background

From April 30, 2016 through May 28, 2016, The DAO offered and sold approximately 1.15 billion DAO Tokens in exchange for a total of approximately 12 million Ether (“ETH”), a

2 Section 21(a) of the Exchange Act authorizes the Commission to investigate violations of the federal securities laws and, in its discretion, to “publish information concerning any such violations.” This Report does not constitute an adjudication of any fact or issue addressed herein, nor does it make any findings of violations by any individual or entity. The facts discussed in Section II, infra, are matters of public record or based on documentary records. We are publishing this Report on the Commission’s website to ensure that all market participants have concurrent and equal access to the information contained herein. 3 Computer scientist Nick Szabo described a “smart contract” as:

a computerized transaction protocol that executes terms of a contract. The general objectives of smart contract design are to satisfy common contractual conditions (such as payment terms, liens, confidentiality, and even enforcement), minimize exceptions both malicious and accidental, and minimize the need for trusted intermediaries. Related economic goals include lowering fraud loss, arbitrations and enforcement costs, and other transaction costs.

See Nick Szabo, Smart Contracts, 1994, http://www.virtualschool.edu/mon/Economics/SmartContracts.html. 4 See SEC v. C.M. Joiner Leasing Corp., 320 U.S. 344, 351 (1943) (“[T]he reach of the [Securities] Act does not stop with the obvious and commonplace. Novel, uncommon, or irregular devices, whatever they appear to be, are also reached if it be proved as matter of fact that they were widely offered or dealt in under terms or courses of dealing which established their character in commerce as ‘investment contracts,’ or as ‘any interest or instrument commonly known as a ‘security’.”); see also Reves v. Ernst & Young, 494 U.S. 56, 61 (1990) (“Congress’ purpose in enacting the securities laws was to regulate investments, in whatever form they are made and by whatever name they are called.”).

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virtual currency5 used on the Ethereum Blockchain.6 As of the time the offering closed, the total ETH raised by The DAO was valued in U.S. Dollars (“USD”) at approximately $150 million.

The concept of a DAO Entity is memorialized in a document (the “White Paper”), authored by Christoph Jentzsch, the Chief Technology Officer of Slock.it, a “Blockchain and IoT [(internet-of-things)] solution company,” incorporated in Germany and co-founded by Christoph Jentzsch, Simon Jentzsch (Christoph Jentzsch’s brother), and Stephan Tual (“Tual”).7 The White Paper purports to describe “the first implementation of a [DAO Entity] code to automate organizational governance and decision making.”8 The White Paper posits that a DAO Entity “can be used by individuals working together collaboratively outside of a traditional corporate form. It can also be used by a registered corporate entity to automate formal governance rules contained in corporate bylaws or imposed by law.” The White Paper proposes an entity—a DAO Entity—that would use smart contracts to attempt to solve governance issues it described as inherent in traditional corporations.9 As described, a DAO Entity purportedly would supplant traditional mechanisms of corporate governance and management with a blockchain such that contractual terms are “formalized, automated and enforced using software.”10

5 The Financial Action Task Force defines “virtual currency” as:

a digital representation of value that can be digitally traded and functions as: (1) a medium of exchange; and/or (2) a unit of account; and/or (3) a store of value, but does not have legal tender status (i.e., when tendered to a creditor, is a valid and legal offer of payment) in any jurisdiction. It is not issued or guaranteed by any jurisdiction, and fulfils the above functions only by agreement within the community of users of the virtual currency. Virtual currency is distinguished from fiat currency (a.k.a. “real currency,” “real money,” or “national currency”), which is the coin and paper money of a country that is designated as its legal tender; circulates; and is customarily used and accepted as a medium of exchange in the issuing country. It is distinct from e-money, which is a digital representation of fiat currency used to electronically transfer value denominated in fiat currency.

FATF Report, Virtual Currencies, Key Definitions and Potential AML/CFT Risks, FINANCIAL ACTION TASK FORCE (June 2014), http://www.fatf-gafi.org/media/fatf/documents/reports/Virtual-currency-key-definitions-and-potential-aml-cft-risks.pdf. 6 Ethereum, developed by the Ethereum Foundation, a Swiss nonprofit organization, is a decentralized platform that runs smart contracts on a blockchain known as the Ethereum Blockchain. 7 Christoph Jentzsch released the final draft of the White Paper on or around March 23, 2016. He introduced his concept of a DAO Entity as early as November 2015 at an Ethereum Developer Conference in London, as a medium to raise funds for Slock.it, a German start-up he co-founded in September 2015. Slock.it purports to create technology that embeds smart contracts that run on the Ethereum Blockchain into real-world devices and, as a result, for example, permits anyone to rent, sell or share physical objects in a decentralized way. See SLOCK.IT, https://slock.it/. 8 Christoph Jentzsch, Decentralized Autonomous Organization to Automate Governance Final Draft – Under Review, https://download.slock.it/public/DAO/WhitePaper.pdf. 9 Id. 10 Id. The White Paper contained the following statement:

A word of caution, at the outset: the legal status of [DAO Entities] remains the subject of active and vigorous debate and discussion. Not everyone shares the same definition. Some have said that [DAO Entities] are autonomous code and can operate independently of legal systems; others

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B. The DAO

“The DAO” is the “first generation” implementation of the White Paper concept of a DAO Entity, and it began as an effort to create a “crowdfunding contract” to raise “funds to grow [a] company in the crypto space.”11 In November 2015, at an Ethereum Developer Conference in London, Christoph Jentzsch described his proposal for The DAO as a “for-profit DAO [Entity],” where participants would send ETH (a virtual currency) to The DAO to purchase DAO Tokens, which would permit the participant to vote and entitle the participant to “rewards.”12 Christoph Jentzsch likened this to “buying shares in a company and getting … dividends.”13 The DAO was to be “decentralized” in that it would allow for voting by investors holding DAO Tokens.14 All funds raised were to be held at an Ethereum Blockchain “address” associated with The DAO and DAO Token holders were to vote on contract proposals, including proposals to The DAO to fund projects and distribute The DAO’s anticipated earnings from the projects it funded.15 The DAO was intended to be “autonomous” in that project proposals were in the form of smart contracts that exist on the Ethereum Blockchain and the votes were administered by the code of The DAO.16

have said that [DAO Entities] must be owned or operate[d] by humans or human created entities. There will be many use cases, and the DAO [Entity] code will develop over time. Ultimately, how a DAO [Entity] functions and its legal status will depend on many factors, including how DAO [Entity] code is used, where it is used, and who uses it. This paper does not speculate about the legal status of [DAO Entities] worldwide. This paper is not intended to offer legal advice or conclusions. Anyone who uses DAO [Entity] code will do so at their own risk.

Id. 11 Christoph Jentzsch, The History of the DAO and Lessons Learned, SLOCK.IT BLOG (Aug. 24, 2016), https://blog.slock.it/the-history-of-the-dao-and-lessons-learned-d06740f8cfa5#.5o62zo8uv. Although The DAO has been described as a “crowdfunding contract,” The DAO would not have met the requirements of Regulation Crowdfunding, adopted under Title III of the Jumpstart Our Business Startups (JOBS) Act of 2012 (providing an exemption from registration for certain crowdfunding), because, among other things, it was not a broker-dealer or a funding portal registered with the SEC and the Financial Industry Regulatory Authority (“FINRA”). See Regulation Crowdfunding: A Small Entity Compliance Guide for Issuers, SEC (Apr. 5, 2017), https://www.sec.gov/info/smallbus/secg/rccomplianceguide-051316.htm; Updated Investor Bulletin: Crowdfunding for Investors, SEC (May 10, 2017), https://www.sec.gov/oiea/investor-alerts-bulletins/ib_crowdfunding-.html. 12 See Slockit, Slock.it DAO demo at Devcon1: IoT + Blockchain, YOUTUBE (Nov. 13, 2015), https://www.youtube.com/watch?v=49wHQoJxYPo. 13 Id. 14 See Jentzsch, supra note 8. 15 Id. In theory, there was no limitation on the type of project that could be proposed. For example, proposed “projects” could include, among other things, projects that would culminate in the creation of products or services that DAO Token holders could use or charge others for using. 16 Id.

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On or about April 29, 2016, Slock.it deployed The DAO code on the Ethereum Blockchain, as a set of pre-programmed instructions.17 This code was to govern how The DAO was to operate.

To promote The DAO, Slock.it’s co-founders launched a website (“The DAO Website”). The DAO Website included a description of The DAO’s intended purpose: “To blaze a new path in business for the betterment of its members, existing simultaneously nowhere and everywhere and operating solely with the steadfast iron will of unstoppable code.”18 The DAO Website also described how The DAO operated, and included a link through which DAO Tokens could be purchased. The DAO Website also included a link to the White Paper, which provided detailed information about a DAO Entity’s structure and its source code and, together with The DAO Website, served as the primary source of promotional materials for The DAO. On The DAO Website and elsewhere, Slock.it represented that The DAO’s source code had been reviewed by “one of the world’s leading security audit companies” and “no stone was left unturned during those five whole days of security analysis.”19

Slock.it’s co-founders also promoted The DAO by soliciting media attention and by posting almost daily updates on The DAO’s status on The DAO and Slock.it websites and numerous online forums relating to blockchain technology. Slock.it’s co-founders used these posts to communicate to the public information about how to participate in The DAO, including: how to create and acquire DAO Tokens; the framework for submitting proposals for projects; and how to vote on proposals. Slock.it also created an online forum on The DAO Website, as well as administered “The DAO Slack” channel, an online messaging platform in which over 5,000 invited “team members” could discuss and exchange ideas about The DAO in real time.

1. DAO Tokens

In exchange for ETH, The DAO created DAO Tokens (proportional to the amount of ETH paid) that were then assigned to the Ethereum Blockchain address of the person or entity remitting the ETH. A DAO Token granted the DAO Token holder certain voting and ownership rights. According to promotional materials, The DAO would earn profits by funding projects

17 According to the White Paper, a DAO Entity is “activated by deployment on the Ethereum [B]lockchain. Once deployed, a [DAO Entity’s] code requires ‘ether’ [ETH] to engage in transactions on Ethereum. Ether is the digital fuel that powers the Ethereum Network.” The only way to update or alter The DAO’s code is to submit a new proposal for voting and achieve a majority consensus on that proposal. See Jentzsch, supra note 8. According to Slock.it’s website, Slock.it gave The DAO code to the Ethereum community, noting that:

The DAO framework is [a] side project of Slock.it UG and a gift to the Ethereum community. It consisted of a definitive whitepaper, smart contract code audited by one of the best security companies in the world and soon, a complete frontend interface. All free and open source for anyone to re-use, it is our way to say ‘thank you’ to the community.

SLOCK.IT, https://slock.it. The DAO code is publicly-available on GitHub, a host of source code. See The Standard DAO Framework, Inc., Whitepaper, GITHUB, https://github.com/slockit/DAO. 18 The DAO Website was available at https://daohub.org. 19 Stephen Tual, Deja Vu DAO Smart Contracts Audit Results, SLOCK.IT BLOG (Apr. 5, 2016), https://blog.slock.it/deja-vu-dai-smart-contracts-audit-results-d26bc088e32e.

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that would provide DAO Token holders a return on investment. The various promotional materials disseminated by Slock.it’s co-founders touted that DAO Token holders would receive “rewards,” which the White Paper defined as, “any [ETH] received by a DAO [Entity] generated from projects the DAO [Entity] funded.” DAO Token holders would then vote to either use the rewards to fund new projects or to distribute the ETH to DAO Token holders.

From April 30, 2016 through May 28, 2016 (the “Offering Period”), The DAO offered and sold DAO Tokens. Investments in The DAO were made “pseudonymously” (i.e., an individual’s or entity’s pseudonym was their Ethereum Blockchain address). To purchase a DAO Token offered for sale by The DAO, an individual or entity sent ETH from their Ethereum Blockchain address to an Ethereum Blockchain address associated with The DAO. All of the ETH raised in the offering as well as any future profits earned by The DAO were to be pooled and held in The DAO’s Ethereum Blockchain address. The token price fluctuated in a range of approximately 1 to 1.5 ETH per 100 DAO Tokens, depending on when the tokens were purchased during the Offering Period. Anyone was eligible to purchase DAO Tokens (as long as they paid ETH). There were no limitations placed on the number of DAO Tokens offered for sale, the number of purchasers of DAO Tokens, or the level of sophistication of such purchasers.

DAO Token holders were not restricted from re-selling DAO Tokens acquired in the offering, and DAO Token holders could sell their DAO Tokens in a variety of ways in the secondary market and thereby monetize their investment as discussed below. Prior to the Offering Period, Slock.it solicited at least one U.S. web-based platform to trade DAO Tokens on its system and, at the time of the offering, The DAO Website and other promotional materials disseminated by Slock.it included representations that DAO Tokens would be available for secondary market trading after the Offering Period via several platforms. During the Offering Period and afterwards, the Platforms posted notices on their own websites and on social media that each planned to support secondary market trading of DAO Tokens.20

In addition to secondary market trading on the Platforms, after the Offering Period, DAO Tokens were to be freely transferable on the Ethereum Blockchain. DAO Token holders would also be permitted to redeem their DAO Tokens for ETH through a complicated, multi-week (approximately 46-day) process referred to as a DAO Entity “split.”21

2. Participants in The DAO

According to the White Paper, in order for a project to be considered for funding with “a DAO [Entity]’s [ETH],” a “Contractor” first must submit a proposal to the DAO Entity. Specifically, DAO Token holders expected Contractors to submit proposals for projects that could provide DAO Token holders returns on their investments. Submitting a proposal to The DAO involved: (1) writing a smart contract, and then deploying and publishing it on the

20 The Platforms are registered with FinCEN as “Money Services Businesses” and provide systems whereby customers may exchange virtual currencies for other virtual currencies or fiat currencies. 21 According to the White Paper, the primary purpose of a split is to protect minority shareholders and prevent what is commonly referred to as a “51% Attack,” whereby an attacker holding 51% of a DAO Entity’s Tokens could create a proposal to send all of the DAO Entity’s funds to himself or herself.

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Ethereum Blockchain; and (2) posting details about the proposal on The DAO Website, including the Ethereum Blockchain address of the deployed contract and a link to its source code. Proposals could be viewed on The DAO Website as well as other publicly-accessible websites. Per the White Paper, there were two prerequisites for submitting a proposal. An individual or entity must: (1) own at least one DAO Token; and (2) pay a deposit in the form of ETH that would be forfeited to the DAO Entity if the proposal was put up for a vote and failed to achieve a quorum of DAO Token holders. It was publicized that Slock.it would be the first to submit a proposal for funding.22

ETH raised by The DAO was to be distributed to a Contractor to fund a proposal only on a majority vote of DAO Token holders.23 DAO Token holders were to cast votes, which would be weighted by the number of tokens they controlled, for or against the funding of a specific proposal. The voting process, however, was publicly criticized in that it could incentivize distorted voting behavior and, as a result, would not accurately reflect the consensus of the majority of DAO Token holders. Specifically, as noted in a May 27, 2016 blog post by a group of computer security researchers, The DAO’s structure included a “strong positive bias to vote YES on proposals and to suppress NO votes as a side effect of the way in which it restricts users’ range of options following the casting of a vote.”24

Before any proposal was put to a vote by DAO Token holders, it was required to be reviewed by one or more of The DAO’s “Curators.” At the time of the formation of The DAO, the Curators were a group of individuals chosen by Slock.it.25 According to the White Paper, the Curators of a DAO Entity had “considerable power.” The Curators performed crucial security functions and maintained ultimate control over which proposals could be submitted to, voted on, and funded by The DAO. As stated on The DAO Website during the Offering Period, The DAO relied on its Curators for “failsafe protection” and for protecting The DAO from “malicous [sic] actors.” Specifically, per The DAO Website, a Curator was responsible for: (1) confirming that any proposal for funding originated from an identifiable person or organization; and (2)

22 It was stated on The DAO Website and elsewhere that Slock.it anticipated that it would be the first to submit a proposal for funding. In fact, a draft of Slock.it’s proposal for funding for an “Ethereum Computer and Universal Sharing Network” was publicly-available online during the Offering Period. 23 DAO Token holders could vote on proposals, either by direct interaction with the Ethereum Blockchain or by using an application that interfaces with the Ethereum Blockchain. It was generally acknowledged that DAO Token holders needed some technical knowledge in order to submit a vote, and The DAO Website included a link to a step-by-step tutorial describing how to vote on proposals. 24 By voting on a proposal, DAO Token holders would “tie up” their tokens until the end of the voting cycle. See Jentzsch, supra note 8 at 8 (“The tokens used to vote will be blocked, meaning they can not [sic] be transferred until the proposal is closed.”). If, however, a DAO Token holder abstained from voting, the DAO Token holder could avoid these restrictions; any DAO Tokens not submitted for a vote could be withdrawn or transferred at any time. As a result, DAO Token holders were incentivized either to vote yes or to abstain from voting. See Dino Mark et al., A Call for a Temporary Moratorium on The DAO, HACKING, DISTRIBUTED (May 27, 2016, 1:35 PM), http://hackingdistributed.com/2016/05/27/dao-call-for-moratorium/. 25 At the time of The DAO’s launch, The DAO Website identified eleven “high profile” individuals as holders of The DAO’s Curator “Multisig” (or “private key”). These individuals all appear to live outside of the United States. Many of them were associated with the Ethereum Foundation, and The DAO Website touted the qualifications and trustworthiness of these individuals.

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confirming that smart contracts associated with any such proposal properly reflected the code the Contractor claims to have deployed on the Ethereum Blockchain. If a Curator determined that the proposal met these criteria, the Curator could add the proposal to the “whitelist,” which was a list of Ethereum Blockchain addresses that could receive ETH from The DAO if the majority of DAO Token holders voted for the proposal.

Curators of The DAO had ultimate discretion as to whether or not to submit a proposal for voting by DAO Token holders. Curators also determined the order and frequency of proposals, and could impose subjective criteria for whether the proposal should be whitelisted. One member of the group chosen by Slock.it to serve collectively as the Curator stated publicly that the Curator had “complete control over the whitelist … the order in which things get whitelisted, the duration for which [proposals] get whitelisted, when things get unwhitelisted … [and] clear ability to control the order and frequency of proposals,” noting that “curators have tremendous power.”26 Another Curator publicly announced his subjective criteria for determining whether to whitelist a proposal, which included his personal ethics.27 Per the White Paper, a Curator also had the power to reduce the voting quorum requirement by 50% every other week. Absent action by a Curator, the quorum could be reduced by 50% only if no proposal had reached the required quorum for 52 weeks.

3. Secondary Market Trading on the Platforms

During the period from May 28, 2016 through early September 2016, the Platforms became the preferred vehicle for DAO Token holders to buy and sell DAO Tokens in the secondary market using virtual or fiat currencies. Specifically, the Platforms used electronic systems that allowed their respective customers to post orders for DAO Tokens on an anonymous basis. For example, customers of each Platform could buy or sell DAO Tokens by entering a market order on the Platform’s system, which would then match with orders from other customers residing on the system. Each Platform’s system would automatically execute these orders based on pre-programmed order interaction protocols established by the Platform.

None of the Platforms received orders for DAO Tokens from non-Platform customers or routed its respective customers’ orders to any other trading destinations. The Platforms publicly displayed all their quotes, trades, and daily trading volume in DAO Tokens on their respective websites. During the period from May 28, 2016 through September 6, 2016, one such Platform executed more than 557,378 buy and sell transactions in DAO Tokens by more than 15,000 of its U.S. and foreign customers. During the period from May 28, 2016 through August 1, 2016, another such Platform executed more than 22,207 buy and sell transactions in DAO Tokens by more than 700 of its U.S. customers.

26 Epicenter, EB134 – Emin Gün Sirer And Vlad Zamfir: On A Rocky DAO, YOUTUBE (June 6, 2016), https://www.youtube.com/watch?v=ON5GhIQdFU8. 27 Andrew Quentson, Are the DAO Curators Masters or Janitors?, THE COIN TELEGRAPH (June 12, 2016), https://cointelegraph.com/news/are-the-dao-curators-masters-or-janitors.

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4. Security Concerns, The “Attack” on The DAO, and The Hard Fork

In late May 2016, just prior to the expiration of the Offering Period, concerns about the safety and security of The DAO’s funds began to surface due to vulnerabilities in The DAO’s code. On May 26, 2016, in response to these concerns, Slock.it submitted a “DAO Security Proposal” that called for the development of certain updates to The DAO’s code and the appointment of a security expert.28 Further, on June 3, 2016, Christoph Jentzsch, on behalf of Slock.it, proposed a moratorium on all proposals until alterations to The DAO’s code to fix vulnerabilities in The DAO’s code had been implemented.29

On June 17, 2016, an unknown individual or group (the “Attacker”) began rapidly diverting ETH from The DAO, causing approximately 3.6 million ETH—1/3 of the total ETH raised by The DAO offering—to move from The DAO’s Ethereum Blockchain address to an Ethereum Blockchain address controlled by the Attacker (the “Attack”).30 Although the diverted ETH was then held in an address controlled by the Attacker, the Attacker was prevented by The DAO’s code from moving the ETH from that address for 27 days.31

In order to secure the diverted ETH and return it to DAO Token holders, Slock.it’s co-founders and others endorsed a “Hard Fork” to the Ethereum Blockchain. The “Hard Fork,” called for a change in the Ethereum protocol on a going forward basis that would restore the DAO Token holders’ investments as if the Attack had not occurred. On July 20, 2016, after a majority of the Ethereum network adopted the necessary software updates, the new, forked Ethereum Blockchain became active.32 The Hard Fork had the effect of transferring all of the funds raised (including those held by the Attacker) from The DAO to a recovery address, where DAO Token holders could exchange their DAO Tokens for ETH.33 All DAO Token holders

28 See Stephan Tual, Proposal #1-DAO Security, Redux, SLOCK.IT BLOG (May 26, 2016), https://blog.slock.it/both-our-proposals-are-now-out-voting-starts-saturday-morning-ba322d6d3aea. The unnamed security expert would “act as the first point of contact for security disclosures, and continually monitor, pre-empt and avert any potential attack vectors The DAO may face, including social, technical and economic attacks.” Id. Slock.it initially proposed a much broader security proposal that included the formation of a “DAO Security” group, the establishment of a “Bug Bounty Program,” and routine external audits of The DAO’s code. However, the cost of the proposal (125,000 ETH), which would be paid from The DAO’s funds, was immediately criticized as too high and Slock.it decided instead to submit the revised proposal described above. See Stephan Tual, DAO.Security, a Proposal to guarantee the integrity of The DAO, SLOCK.IT BLOG (May 25, 2016), https://blog.slock.it/dao-security-a-proposal-to-guarantee-the-integrity-of-the-dao-3473899ace9d. 29 See TheDAO Proposal_ID 5, ETHERSCAN, https://etherscan.io/token/thedao-proposal/5. 30 See Stephan Tual, DAO Security Advisory: live updates, SLOCK.IT BLOG (June 17, 2016), https://blog.slock.it/dao-security-advisory-live-updates-2a0a42a2d07b. 31 Id. 32 A minority group, however, elected not to adopt the new Ethereum Blockchain created by the Hard Fork because to do so would run counter to the concept that a blockchain is immutable. Instead they continued to use the former version of the blockchain, which is now known as “Ethereum Classic.” 33 See Christoph Jentzsch, What the ‘Fork’ Really Means, SLOCK.IT BLOG (July 18, 2016), https://blog.slock.it/what-the-fork-really-means-6fe573ac31dd.

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who adopted the Hard Fork could exchange their DAO Tokens for ETH, and avoid any loss of the ETH they had invested.34

III. Discussion

The Commission is aware that virtual organizations and associated individuals and entities increasingly are using distributed ledger technology to offer and sell instruments such as DAO Tokens to raise capital. These offers and sales have been referred to, among other things, as “Initial Coin Offerings” or “Token Sales.” Accordingly, the Commission deems it appropriate and in the public interest to issue this Report in order to stress that the U.S. federal securities law may apply to various activities, including distributed ledger technology, depending on the particular facts and circumstances, without regard to the form of the organization or technology used to effectuate a particular offer or sale. In this Report, the Commission considers the particular facts and circumstances of the offer and sale of DAO Tokens to demonstrate the application of existing U.S. federal securities laws to this new paradigm.

A. Section 5 of the Securities Act

The registration provisions of the Securities Act contemplate that the offer or sale of securities to the public must be accompanied by the “full and fair disclosure” afforded by registration with the Commission and delivery of a statutory prospectus containing information necessary to enable prospective purchasers to make an informed investment decision. Registration entails disclosure of detailed “information about the issuer’s financial condition, the identity and background of management, and the price and amount of securities to be offered … .” SEC v. Cavanagh, 1 F. Supp. 2d 337, 360 (S.D.N.Y. 1998), aff’d, 155 F.3d 129 (2d Cir. 1998). “The registration statement is designed to assure public access to material facts bearing on the value of publicly traded securities and is central to the Act’s comprehensive scheme for protecting public investors.” SEC v. Aaron, 605 F.2d 612, 618 (2d Cir. 1979) (citing SEC v. Ralston Purina Co., 346 U.S. 119, 124 (1953)), vacated on other grounds, 446 U.S. 680 (1980). Section 5(a) of the Securities Act provides that, unless a registration statement is in effect as to a security, it is unlawful for any person, directly or indirectly, to engage in the offer or sale of securities in interstate commerce. Section 5(c) of the Securities Act provides a similar prohibition against offers to sell, or offers to buy, unless a registration statement has been filed. Thus, both Sections 5(a) and 5(c) of the Securities Act prohibit the unregistered offer or sale of securities in interstate commerce. 15 U.S.C. § 77e(a) and (c). Violations of Section 5 do not require scienter. SEC v. Universal Major Indus. Corp., 546 F.2d 1044, 1047 (2d Cir. 1976).

34 Id.

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B. DAO Tokens Are Securities

1. Foundational Principles of the Securities Laws Apply to Virtual Organizations or Capital Raising Entities Making Use of Distributed Ledger Technology

Under Section 2(a)(1) of the Securities Act and Section 3(a)(10) of the Exchange Act, a security includes “an investment contract.” See 15 U.S.C. §§ 77b-77c. An investment contract is an investment of money in a common enterprise with a reasonable expectation of profits to be derived from the entrepreneurial or managerial efforts of others. See SEC v. Edwards, 540 U.S. 389, 393 (2004); SEC v. W.J. Howey Co., 328 U.S. 293, 301 (1946); see also United Housing Found., Inc. v. Forman, 421 U.S. 837, 852-53 (1975) (The “touchstone” of an investment contract “is the presence of an investment in a common venture premised on a reasonable expectation of profits to be derived from the entrepreneurial or managerial efforts of others.”). This definition embodies a “flexible rather than a static principle, one that is capable of adaptation to meet the countless and variable schemes devised by those who seek the use of the money of others on the promise of profits.” Howey, 328 U.S. at 299 (emphasis added). The test “permits the fulfillment of the statutory purpose of compelling full and fair disclosure relative to the issuance of ‘the many types of instruments that in our commercial world fall within the ordinary concept of a security.’” Id. In analyzing whether something is a security, “form should be disregarded for substance,” Tcherepnin v. Knight, 389 U.S. 332, 336 (1967), “and the emphasis should be on economic realities underlying a transaction, and not on the name appended thereto.” United Housing Found., 421 U.S. at 849.

2. Investors in The DAO Invested Money

In determining whether an investment contract exists, the investment of “money” need not take the form of cash. See, e.g., Uselton v. Comm. Lovelace Motor Freight, Inc., 940 F.2d 564, 574 (10th Cir. 1991) (“[I]n spite of Howey’s reference to an ‘investment of money,’ it is well established that cash is not the only form of contribution or investment that will create an investment contract.”).

Investors in The DAO used ETH to make their investments, and DAO Tokens were received in exchange for ETH. Such investment is the type of contribution of value that can create an investment contract under Howey. See SEC v. Shavers, No. 4:13-CV-416, 2014 WL 4652121, at *1 (E.D. Tex. Sept. 18, 2014) (holding that an investment of Bitcoin, a virtual currency, meets the first prong of Howey); Uselton, 940 F.2d at 574 (“[T]he ‘investment’ may take the form of ‘goods and services,’ or some other ‘exchange of value’.”) (citations omitted).

3. With a Reasonable Expectation of Profits

Investors who purchased DAO Tokens were investing in a common enterprise and reasonably expected to earn profits through that enterprise when they sent ETH to The DAO’s Ethereum Blockchain address in exchange for DAO Tokens. “[P]rofits” include “dividends, other periodic payments, or the increased value of the investment.” Edwards, 540 U.S. at 394. As described above, the various promotional materials disseminated by Slock.it and its co-founders informed investors that The DAO was a for-profit entity whose objective was to fund

12

projects in exchange for a return on investment.35 The ETH was pooled and available to The DAO to fund projects. The projects (or “contracts”) would be proposed by Contractors. If the proposed contracts were whitelisted by Curators, DAO Token holders could vote on whether The DAO should fund the proposed contracts. Depending on the terms of each particular contract, DAO Token holders stood to share in potential profits from the contracts. Thus, a reasonable investor would have been motivated, at least in part, by the prospect of profits on their investment of ETH in The DAO.

4. Derived from the Managerial Efforts of Others

a. The Efforts of Slock.it, Slock.it’s Co-Founders, and The DAO’s Curators Were Essential to the Enterprise

Investors’ profits were to be derived from the managerial efforts of others—specifically, Slock.it and its co-founders, and The DAO’s Curators. The central issue is “whether the efforts made by those other than the investor are the undeniably significant ones, those essential managerial efforts which affect the failure or success of the enterprise.” SEC v. Glenn W. Turner Enters., Inc., 474 F.2d 476, 482 (9th Cir. 1973). The DAO’s investors relied on the managerial and entrepreneurial efforts of Slock.it and its co-founders, and The DAO’s Curators, to manage The DAO and put forth project proposals that could generate profits for The DAO’s investors.

Investors’ expectations were primed by the marketing of The DAO and active engagement between Slock.it and its co-founders with The DAO and DAO Token holders. To market The DAO and DAO Tokens, Slock.it created The DAO Website on which it published the White Paper explaining how a DAO Entity would work and describing their vision for a DAO Entity. Slock.it also created and maintained other online forums that it used to provide information to DAO Token holders about how to vote and perform other tasks related to their investment. Slock.it appears to have closely monitored these forums, answering questions from DAO Token holders about a variety of topics, including the future of The DAO, security concerns, ground rules for how The DAO would work, and the anticipated role of DAO Token holders. The creators of The DAO held themselves out to investors as experts in Ethereum, the blockchain protocol on which The DAO operated, and told investors that they had selected persons to serve as Curators based on their expertise and credentials. Additionally, Slock.it told investors that it expected to put forth the first substantive profit-making contract proposal—a blockchain venture in its area of expertise. Through their conduct and marketing materials, Slock.it and its co-founders led investors to believe that they could be relied on to provide the significant managerial efforts required to make The DAO a success.

Investors in The DAO reasonably expected Slock.it and its co-founders, and The DAO’s Curators, to provide significant managerial efforts after The DAO’s launch. The expertise of The DAO’s creators and Curators was critical in monitoring the operation of The DAO, safeguarding investor funds, and determining whether proposed contracts should be put for a

35 That the “projects” could encompass services and the creation of goods for use by DAO Token holders does not change the core analysis that investors purchased DAO Tokens with the expectation of earning profits from the efforts of others.

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vote. Investors had little choice but to rely on their expertise. At the time of the offering, The DAO’s protocols had already been pre-determined by Slock.it and its co-founders, including the control that could be exercised by the Curators. Slock.it and its co-founders chose the Curators, whose function it was to: (1) vet Contractors; (2) determine whether and when to submit proposals for votes; (3) determine the order and frequency of proposals that were submitted for a vote; and (4) determine whether to halve the default quorum necessary for a successful vote on certain proposals. Thus, the Curators exercised significant control over the order and frequency of proposals, and could impose their own subjective criteria for whether the proposal should be whitelisted for a vote by DAO Token holders. DAO Token holders’ votes were limited to proposals whitelisted by the Curators, and, although any DAO Token holder could put forth a proposal, each proposal would follow the same protocol, which included vetting and control by the current Curators. While DAO Token holders could put forth proposals to replace a Curator, such proposals were subject to control by the current Curators, including whitelisting and approval of the new address to which the tokens would be directed for such a proposal. In essence, Curators had the power to determine whether a proposal to remove a Curator was put to a vote.36

And, Slock.it and its co-founders did, in fact, actively oversee The DAO. They monitored The DAO closely and addressed issues as they arose, proposing a moratorium on all proposals until vulnerabilities in The DAO’s code had been addressed and a security expert to monitor potential attacks on The DAO had been appointed. When the Attacker exploited a weakness in the code and removed investor funds, Slock.it and its co-founders stepped in to help resolve the situation.

b. DAO Token Holders’ Voting Rights Were Limited

Although DAO Token holders were afforded voting rights, these voting rights were limited. DAO Token holders were substantially reliant on the managerial efforts of Slock.it, its co-founders, and the Curators.37 Even if an investor’s efforts help to make an enterprise profitable, those efforts do not necessarily equate with a promoter’s significant managerial efforts or control over the enterprise. See, e.g., Glenn W. Turner, 474 F.2d at 482 (finding that a multi-level marketing scheme was an investment contract and that investors relied on the promoter’s managerial efforts, despite the fact that investors put forth the majority of the labor that made the enterprise profitable, because the promoter dictated the terms and controlled the scheme itself); Long v. Shultz, 881 F.2d 129, 137 (5th Cir. 1989) (“An investor may authorize the assumption of particular risks that would create the possibility of greater profits or losses but still depend on a third party for all of the essential managerial efforts without which the risk could not

36 DAO Token holders could put forth a proposal to split from The DAO, which would result in the creation of a new DAO Entity with a new Curator. Other DAO Token holders would be allowed to join the new DAO Entity as long as they voted yes to the original “split” proposal. Unlike all other contract proposals, a proposal to split did not require a deposit or a quorum, and it required a seven-day debating period instead of the minimum two-week debating period required for other proposals. 37 Because, as described above, DAO Token holders were incentivized either to vote yes or to abstain from voting, the results of DAO Token holder voting would not necessarily reflect the actual view of a majority of DAO Token holders.

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pay off.”). See also generally SEC v. Merchant Capital, LLC, 483 F.3d 747 (11th Cir. 2007) (finding an investment contract even where voting rights were provided to purported general partners, noting that the voting process provided limited information for investors to make informed decisions, and the purported general partners lacked control over the information in the ballots).

The voting rights afforded DAO Token holders did not provide them with meaningful control over the enterprise, because (1) DAO Token holders’ ability to vote for contracts was a largely perfunctory one; and (2) DAO Token holders were widely dispersed and limited in their ability to communicate with one another.

First, as discussed above, DAO Token holders could only vote on proposals that had been cleared by the Curators.38 And that clearance process did not include any mechanism to provide DAO Token holders with sufficient information to permit them to make informed voting decisions. Indeed, based on the particular facts concerning The DAO and the few draft proposals discussed in online forums, there are indications that contract proposals would not have necessarily provide enough information for investors to make an informed voting decision, affording them less meaningful control. For example, the sample contract proposal attached to the White Paper included little information concerning the terms of the contract. Also, the Slock.it co-founders put forth a draft of their own contract proposal and, in response to questions and requests to negotiate the terms of the proposal (posted to a DAO forum), a Slock.it founder explained that the proposal was intentionally vague and that it was, in essence, a take it or leave it proposition not subject to negotiation or feedback. See, e.g., SEC v. Shields, 744 F.3d 633, 643-45 (10th Cir. 2014) (in assessing whether agreements were investment contracts, court looked to whether “the investors actually had the type of control reserved under the agreements to obtain access to information necessary to protect, manage, and control their investments at the time they purchased their interests.”).

Second, the pseudonymity and dispersion of the DAO Token holders made it difficult for them to join together to effect change or to exercise meaningful control. Investments in The DAO were made pseudonymously (such that the real-world identities of investors are not apparent), and there was great dispersion among those individuals and/or entities who were invested in The DAO and thousands of individuals and/or entities that traded DAO Tokens in the secondary market—an arrangement that bears little resemblance to that of a genuine general partnership. Cf. Williamson v. Tucker, 645 F.2d 404, 422-24 (5th Cir. 1981) (“[O]ne would not expect partnership interests sold to large numbers of the general public to provide any real partnership control; at some point there would be so many [limited] partners that a partnership vote would be more like a corporate vote, each partner’s role having been diluted to the level of a single shareholder in a corporation.”).39 Slock.it did create and maintain online forums on which

38 Because, in part, The DAO never commenced its business operations funding projects, this Report does not analyze the question whether anyone associated with The DAO was an “[i]nvestment adviser” under Section 202(a)(11) of the Investment Advisers Act of 1940 (“Advisers Act”). See 15 U.S.C. § 80b-2(a)(11). Those who would use virtual organizations should consider their obligations under the Advisers Act. 39 The Fifth Circuit in Williamson stated that:

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investors could submit posts regarding contract proposals, which were not limited to use by DAO Token holders (anyone was permitted to post). However, DAO Token holders were pseudonymous, as were their posts to the forums. Those facts, combined with the sheer number of DAO Token holders, potentially made the forums of limited use if investors hoped to consolidate their votes into blocs powerful enough to assert actual control. This was later demonstrated through the fact that DAO Token holders were unable to effectively address the Attack without the assistance of Slock.it and others. The DAO Token holders’ pseudonymity and dispersion diluted their control over The DAO. See Merchant Capital, 483 F.3d at 758 (finding geographic dispersion of investors weighing against investor control).

These facts diminished the ability of DAO Token holders to exercise meaningful control over the enterprise through the voting process, rendering the voting rights of DAO Token holders akin to those of a corporate shareholder. Steinhardt Group, Inc. v. Citicorp., 126 F.3d 144, 152 (3d Cir. 1997) (“It must be emphasized that the assignment of nominal or limited responsibilities to the participant does not negate the existence of an investment contract; where the duties assigned are so narrowly circumscribed as to involve little real choice of action … a security may be found to exist … . [The] emphasis must be placed on economic reality.”) (citing SEC v. Koscot Interplanetary, Inc., 497 F.2d 473, 483 n. 14 (5th Cir. 1974)).

By contract and in reality, DAO Token holders relied on the significant managerial efforts provided by Slock.it and its co-founders, and The DAO’s Curators, as described above. Their efforts, not those of DAO Token holders, were the “undeniably significant” ones, essential to the overall success and profitability of any investment into The DAO. See Glenn W. Turner, 474 F.2d at 482.

C. Issuers Must Register Offers and Sales of Securities Unless a Valid Exemption Applies

The definition of “issuer” is broadly defined to include “every person who issues or proposes to issue any security” and “person” includes “any unincorporated organization.” 15 U.S.C. § 77b(a)(4). The term “issuer” is flexibly construed in the Section 5 context “as issuers devise new ways to issue their securities and the definition of a security itself expands.” Doran v. Petroleum Mgmt. Corp., 545 F.2d 893, 909 (5th Cir. 1977); accord SEC v. Murphy, 626 F.2d 633, 644 (9th Cir. 1980) (“[W]hen a person [or entity] organizes or sponsors the organization of

A general partnership or joint venture interest can be designated a security if the investor can establish, for example, that (1) an agreement among the parties leaves so little power in the hands of the partner or venture that the arrangement in fact distributes power as would a limited partnership; or (2) the partner or venturer is so inexperienced and unknowledgeable in business affairs that he is incapable of intelligently exercising his partnership or venture powers; or (3) the partner or venturer is so dependent on some unique entrepreneurial or managerial ability of the promoter or manager that he cannot replace the manager of the enterprise or otherwise exercise meaningful partnership or venture powers.

Williamson, 645 F.2d at 424 & n.15 (court also noting that, “this is not to say that other factors could not also give rise to such a dependence on the promoter or manager that the exercise of partnership powers would be effectively precluded.”).

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limited partnerships and is primarily responsible for the success or failure of the venture for which the partnership is formed, he will be considered an issuer … .”).

The DAO, an unincorporated organization, was an issuer of securities, and information about The DAO was “crucial” to the DAO Token holders’ investment decision. See Murphy, 626 F.2d at 643 (“Here there is no company issuing stock, but instead, a group of individuals investing funds in an enterprise for profit, and receiving in return an entitlement to a percentage of the proceeds of the enterprise.”) (citation omitted). The DAO was “responsible for the success or failure of the enterprise,” and accordingly was the entity about which the investors needed information material to their investment decision. Id. at 643-44.

During the Offering Period, The DAO offered and sold DAO Tokens in exchange for ETH through The DAO Website, which was publicly-accessible, including to individuals in the United States. During the Offering Period, The DAO sold approximately 1.15 billion DAO Tokens in exchange for a total of approximately 12 million ETH, which was valued in USD, at the time, at approximately $150 million. Because DAO Tokens were securities, The DAO was required to register the offer and sale of DAO Tokens, unless a valid exemption from such registration applied.

Moreover, those who participate in an unregistered offer and sale of securities not subject to a valid exemption are liable for violating Section 5. See, e.g., Murphy, 626 F.2d at 650-51 (“[T]hose who ha[ve] a necessary role in the transaction are held liable as participants.”) (citing SEC v. North Am. Research & Dev. Corp., 424 F.2d 63, 81 (2d Cir. 1970); SEC v. Culpepper, 270 F.2d 241, 247 (2d Cir. 1959); SEC v. International Chem. Dev. Corp., 469 F.2d 20, 28 (10th Cir. 1972); Pennaluna & Co. v. SEC, 410 F.2d 861, 864 n.1, 868 (9th Cir. 1969)); SEC v. Softpoint, Inc., 958 F. Supp 846, 859-60 (S.D.N.Y. 1997) (“The prohibitions of Section 5 … sweep[] broadly to encompass ‘any person’ who participates in the offer or sale of an unregistered, non-exempt security.”); SEC v. Chinese Consol. Benevolent Ass’n., 120 F.2d 738, 740-41 (2d Cir. 1941) (defendant violated Section 5(a) “because it engaged in selling unregistered securities” issued by a third party “when it solicited offers to buy the securities ‘for value’”).

D. A System that Meets the Definition of an Exchange Must Register as a National Securities Exchange or Operate Pursuant to an Exemption from Such Registration

Section 5 of the Exchange Act makes it unlawful for any broker, dealer, or exchange, directly or indirectly, to effect any transaction in a security, or to report any such transaction, in interstate commerce, unless the exchange is registered as a national securities exchange under Section 6 of the Exchange Act, or is exempted from such registration. See 15 U.S.C. §78e. Section 3(a)(1) of the Exchange Act defines an “exchange” as “any organization, association, or group of persons, whether incorporated or unincorporated, which constitutes, maintains, or provides a market place or facilities for bringing together purchasers and sellers of securities or for otherwise performing with respect to securities the functions commonly performed by a stock exchange as that term is generally understood … .” 15 U.S.C. § 78c(a)(1).

Exchange Act Rule 3b-16(a) provides a functional test to assess whether a trading system meets the definition of exchange under Section 3(a)(1). Under Exchange Act Rule 3b-16(a), an

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organization, association, or group of persons shall be considered to constitute, maintain, or provide “a marketplace or facilities for bringing together purchasers and sellers of securities or for otherwise performing with respect to securities the functions commonly performed by a stock exchange,” if such organization, association, or group of persons: (1) brings together the orders for securities of multiple buyers and sellers; and (2) uses established, non-discretionary methods (whether by providing a trading facility or by setting rules) under which such orders interact with each other, and the buyers and sellers entering such orders agree to the terms of the trade.40

A system that meets the criteria of Rule 3b-16(a), and is not excluded under Rule 3b-16(b), must register as a national securities exchange pursuant to Sections 5 and 6 of the Exchange Act41 or operate pursuant to an appropriate exemption. One frequently used exemption is for alternative trading systems (“ATS”).42 Rule 3a1-1(a)(2) exempts from the definition of “exchange” under Section 3(a)(1) an ATS that complies with Regulation ATS,43 which includes, among other things, the requirement to register as a broker-dealer and file a Form ATS with the Commission to provide notice of the ATS’s operations. Therefore, an ATS that operates pursuant to the Rule 3a1-1(a)(2) exemption and complies with Regulation ATS would not be subject to the registration requirement of Section 5 of the Exchange Act.

The Platforms that traded DAO Tokens appear to have satisfied the criteria of Rule 3b-16(a) and do not appear to have been excluded from Rule 3b-16(b). As described above, the Platforms provided users with an electronic system that matched orders from multiple parties to buy and sell DAO Tokens for execution based on non-discretionary methods.

IV. Conclusion and References for Additional Guidance

Whether or not a particular transaction involves the offer and sale of a security—regardless of the terminology used—will depend on the facts and circumstances, including the

40 See 17 C.F.R. § 240.3b-16(a). The Commission adopted Rule 3b-16(b) to exclude explicitly certain systems that the Commission believed did not meet the exchange definition. These systems include systems that merely route orders to other execution facilities and systems that allow persons to enter orders for execution against the bids and offers of a single dealer system. See Securities Exchange Act Rel. No. 40760 (Dec. 8, 1998), 63 FR 70844 (Dec. 22, 1998) (Regulation of Exchanges and Alternative Trading Systems) (“Regulation ATS”), 70852. 41 15 U.S.C. § 78e. A “national securities exchange” is an exchange registered as such under Section 6 of the Exchange Act. 15 U.S.C. § 78f. 42 Rule 300(a) of Regulation ATS promulgated under the Exchange Act provides that an ATS is:

any organization, association, person, group of persons, or system: (1) [t]hat constitutes, maintains, or provides a market place or facilities for bringing together purchasers and sellers of securities or for otherwise performing with respect to securities the functions commonly performed by a stock exchange within the meaning of [Exchange Act Rule 3b-16]; and (2) [t]hat does not: (i) [s]et rules governing the conduct of subscribers other than the conduct of subscribers’ trading on such [ATS]; or (ii) [d]iscipline subscribers other than by exclusion from trading.

Regulation ATS, supra note 40, Rule 300(a). 43 See 17 C.F.R. § 240.3a1-1(a)(2). Rule 3a1-1 also provides two other exemptions from the definition of “exchange” for any ATS operated by a national securities association, and any ATS not required to comply with Regulation ATS pursuant to Rule 301(a) of Regulation ATS. See 17 C.F.R. §§ 240.3a1-1(a)(1) and (3).

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economic realities of the transaction. Those who offer and sell securities in the United States must comply with the federal securities laws, including the requirement to register with the Commission or to qualify for an exemption from the registration requirements of the federal securities laws. The registration requirements are designed to provide investors with procedural protections and material information necessary to make informed investment decisions. These requirements apply to those who offer and sell securities in the United States, regardless whether the issuing entity is a traditional company or a decentralized autonomous organization, regardless whether those securities are purchased using U.S. dollars or virtual currencies, and regardless whether they are distributed in certificated form or through distributed ledger technology. In addition, any entity or person engaging in the activities of an exchange, such as bringing together the orders for securities of multiple buyers and sellers using established non-discretionary methods under which such orders interact with each other and buyers and sellers entering such orders agree upon the terms of the trade, must register as a national securities exchange or operate pursuant to an exemption from such registration.

To learn more about registration requirements under the Securities Act, please visit the Commission’s website here. To learn more about the Commission’s registration requirements for investment companies, please visit the Commission’s website here. To learn more about the Commission’s registration requirements for national securities exchanges, please visit the Commission’s website here. To learn more about alternative trading systems, please see the Regulation ATS adopting release here.

For additional guidance, please see the following Commission enforcement actions involving virtual currencies:

• SEC v. Trendon T. Shavers and Bitcoin Savings and Trust, Civil Action No. 4:13-CV-416 (E.D. Tex., complaint filed July 23, 2013)

• In re Erik T. Voorhees, Rel. No. 33-9592 (June 3, 2014)

• In re BTC Trading, Corp. and Ethan Burnside, Rel. No. 33-9685 (Dec. 8, 2014)

• SEC v. Homero Joshua Garza, Gaw Miners, LLC, and ZenMiner, LLC (d/b/a Zen Cloud), Civil Action No. 3:15-CV-01760 (D. Conn., complaint filed Dec. 1, 2015)

• In re Bitcoin Investment Trust and SecondMarket, Inc., Rel. No. 34-78282 (July 11, 2016)

• In re Sunshine Capital, Inc., File No. 500-1 (Apr. 11, 2017)

And please see the following investor alerts:

• Bitcoin and Other Virtual Currency-Related Investments (May 7, 2014)

• Ponzi Schemes Using Virtual Currencies (July 2013)

By the Commission.

EXHIBIT 10

Home (https://smarticoinvestor.com) / ICO (https://smarticoinvestor.com/category/ico/) /ParagonCoin ICO – The $100 Mln Blockchain Run By A Model, A Rapper and the Father of the Russian Internet

Before I start my review of ParagonCoin (https://paragoncoin.com/) I want to get a few things out of the way. Yes, they have the Game on theiradvisory board and Founder Jessica Versteeg (https://www.instagram.com/jessversteeg/?hl=en) is former Miss Iowa(https://thepageantplanet.com/wp-content/uploads/2015/06/1964947_637590329663666_190860430831200551_n.jpg). But, if you just read theheadline, you’ll miss all the interesting bits about this soon to be $100 million ICO. I had a chance to speak with Jessica and her husband EgorLavrov (https://www.linkedin.com/in/elavrov) at length with a friend of mine, Shaun Gindi (https://www.linkedin.com/in/gindi), who owns the Ajoya(http://ajoyalife.com/) chain of dispensaries in Colorado and brought almost a decade’s worth of experience to the table.

ParagonCoin ICO – The $100 Mln Blockchain Run By A Model,A Rapper and the Father of the Russian InternetBy : Sam (https://smarticoinvestor.com/author/admin/) August 25, 2017 Category : ICO (https://smarticoinvestor.com/category/ico/) Tags: ICO(https://smarticoinvestor.com/tag/ico/), Marijuana (https://smarticoinvestor.com/tag/marijuana/), Paragon(https://smarticoinvestor.com/tag/paragon/), ParagonCoin (https://smarticoinvestor.com/tag/paragoncoin/), Weed(https://smarticoinvestor.com/tag/weed/)

ICO 26

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Jessica Versteeg and Egor Lavrov

It took me a while to figure out what Paragon’s plan was. Its actually very similar to Ambrosus (https://smarticoinvestor.com/ambrosus-ico-global-disruption-food-supply-chain/). The very foundation of project will be their open-source blockchain ParagonChain, a transparent immutable ledgerwhich will record everything from from seed to dispensary. The data put on the blockchain will include patient information, plant registration ID’s,lab results, THC and CBD concentration and many other individual data points. Their blockchain will cover the entire supply chain, growers,laboratories, manufactures, logistics and finally dispensaries, but only for the sale of non-cannabis items. Retail shops will be able to use theblockchain, but will only be able to pay bud tenders, drivers, security, rent, and basically everything except the actual plant.

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So one thing I probably should have known going into the call was that Colorado already has a tracking system called METRC(https://www.metrc.com/), using RFID tags produced by Franwell (http://www.franwell.com/), its parent company. I had Shaun on the call becausehe has been in the industry since 2008 and was the first ever customer for BioTrackTHC (https://www.biotrack.com/about/) in 2011. NeitherMETRC or BioTrackTHC share data with each other, so Shaun has to keep account of his inventory on both systems, which he said is a “real painin his ass.” METRC doesn’t have a PoS system, but it allows the state to see where every plant is in the system. Both systems are centralized andowned by private companies who won state contracts for the exclusive rights.

It’s not that Paragon won’t have cash to lobby, Egor told me that “We’ve raised $25 out of the $100 million already. Of that $22 million is friends andfamily and only $3 million is outsiders, we just announced a few days ago.” While most of their raise will go towards real estate purchases, theremaining cash will allow them to lobby for either exclusive or alternative use as California’s tracking system. In my view it’s extremely importantthat they get the sole rights to California’s system, as it will allow them to set precedent for other states who are thinking about implementingsimilar systems.

The future legalization of marijuana will be advanced through greater regulation, activism and most importantly, open, transparent businesses thatpay taxes and adhere to local laws. The growing tide of support for the medicinal plant is turning America red, white and “green,” and according tothe latest reports (http://www.governing.com/gov-data/state-marijuana-laws-map-medical-recreational.html) “Twenty-six states and the District ofColumbia currently have laws broadly legalizing marijuana in some form. Three other states will soon join them after recently passing measurespermitting use of medical marijuana.” As more states turn Green, they will need a proven regulatory solution modeled after other states’experiences and this is where Paragon might step in.

In my view, Paragon must step in and become the primary tracking system across the United States. But Jessica told me that “It’s going to be aquestion for the community. I want to share and if no one else wants it, I built it for myself and I’ll use it for myself. The community will decide if theylike Paragon or not.” While I agree with her moral beliefs about the matter, government sides with large donors who can hire lobbyists to further

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their cause. If Paragon wants to really become successful, they will need to use their crowdsale raise to win these large state contracts to be theexclusive tracking system. Egor said though that “If the government will choose one provider, which is a privately held for-profit solution, I think wewill have a lot of leverage pitching a free alternative, it will be hard not to let us in.”

ParagonSpaceThe success of their coin though is not completely in the hands of governments. Instead, they are going to use a large portion of their crowdsaleraise to purchase commercial property in San Francisco and other cities such as Chicago, LA, and Madrid. Commercial space is hard to find andacquire in San Fran. Startups first have to prove they have money to pay for the commercial space, as a lot of them fail in the first few years. Evenif a cannabis company meets these standards, a lot of landlords do not want their business due to Federal laws.

Paragon hopes to purchase and develop several spaces, depending on the total crowdsale raise, where “green” businesses can operate withoutattached stigmas. The spaces will also have a testing laboratory and legal teams working out of them. Yegor said this is why he believes the valueof PRG “will grow is because we are building this ecosystem around it and for it. If our co-working spaces are successful, the only way to pay for itwill be PRG and if the blockchain is successful, then there will be more adoption and more use and we are burning 50% of the transaction fee onthe blockchain. This is how we are adding value for our early adopters.”

The co-working spaces are a novel idea, and will take some of the revenue burden off of the company. Plus it will allow for community meetings,shared ideas and other benefits coworking spaces provide.

In their whitepaper, Paragon describes how their co-working spaces will work:

To get a reserved space at our center, applicants will need to pitch their legalization ideas or cannabis startup ideas to our community. Allapplications will be upvoted and/or downvoted by the community members with our tokens. Only applicants with the most upvotes will secure areserved space at our centers; other token holders will still have access and use the common floor for workspace.”

They also list the following ways in which PRG will be used in each space:

Opening doors by scanning a QR code of an active wallet with at least 1 PRGPaying for your own and/or guest access. Renting floating or fixed desk space or private office with PRGPrinting/scanning/faxing services at ParagonCoin Centers can be paid automatically with PRGPaying for food, drinks, events, and merchandise with simple PRG checkoutSecuring conferences, events, research, and educational space for the legalized cannabis industryBuying time for photo/audio/video studio for product shootings, interviews, pod- casts, etc.Joining a social club and/or café for ParagonCoin Club membersParticipating in web and in-app coworking, events, and a conference-reservation system with instant PRG paymentSpecialized retail services and SPAs with cannabis products at a flagship location with PRG payment and tipping (retail of cannabis productsat spas limited to jurisdictions where such cannabis products are legal)

With this level of transactions with the coin, the value of the coin will increase naturally as its supply decreases, rewarding long term holders ofPRG. Their projections for the first year will be “10 spaces, with 200 members each, and each of those spending 30-50 PRG per day for officespace and other amenities. This equates to an annual run rate of close to 25M PRG.”

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The profitability of the real estate along is second in importance to the appreciation of PRG. “We will try to let people rent spaces at our co-workingspaces below cost, but because they are paying in PRG and because of the mechanism of decreasing supply, we are hoping to profit on the valueof PRG and not on the rent,” Egor said. If they fail to achieve the numbers above, this could create a significant cash burn problem, but theyalready have enough from their pre-sale to purchase their first property.

The extent of their real estate purchases and their final budget depends on the total raise from their crowdsale. Egor told in our interview that “A lotwill depend on the success on how the crowdsale goes. If it’s a lower amount we will most likely be California focused, however, if we hit the hardcap, then we will be a global real estate project. We are planning to go to Spain and Paraguay.”

Blockchain and BeyondOnce the blockchain and realestate parts of the business are setup, the next step will be to establish Paragon Accelerator, a fund for helping andencouraging green businesses working out of the ParagonSpaces. These startups will be given technical and legal support and even assistance intheir own token creation and crowdsales. Paragon will bring established business partners with young companies to act as mentors and financethe projects. Furthermore, they will provide development support for companies who want to integrate Paragon’s Coin and blockchain into theiroperations.

For example, a large chain of dispensaries could have their own store app where customers can purchase everything but the plant withParagonCoins, more so, to entice people to use the Coins the store could offer a 10% discount on all non-cannabis related purchases. All of thisinventory could be tracked and allow for easier accounting. The dispensaries could even set up an agreement with the suppliers in the form of asmart contract to issue more inventory automatically when the stock went under a certain point.

Grow ops could hire Paragon to create an interface which connects to their existing systems that register their plants, trim and other componentsinto the system as they get passed along to manufacturers and laboratories. Every step of the way would be tracked and registered on theblockchain.

Once the product gets to the lab for testing, information such as mold, mildew, pesticides and THC/CBD levels could all be recorded with the helpof a Paragon designed app.

The core of development though will be tied into the work done at ParagonSpaces and through their ParagonOnline app.

TeamThe story of Paragon can’t be told without telling Jessica’s story.

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I grew up with a guy in Iowa and he went on to play in the NFL. During his time in the NFL he always asked me if he could smoke weed forhis pain. He didn’t want to take the painkillers because he thought he would get addicted and wanted to smoke weed. I didn’t know thataddiction was real at the time and during school the D.A.R.E. program taught that weed is bad and it will make you burn in hell and join agang. So I told him “no” you need to trust these NFL doctors and you’ll never get addicted. Then we let go from the NFL after his fifthconcussion. He was then vomiting every day, he was depressed, he was sleeping when we wasn’t vomiting, he was forgetting things, hewas hearing voices, having mood swings. I kept telling everyone that he had dementia and he needed help. The people that I did tell,including the NFL, all said that these were signs of concussions and to let him sleep and throw up. These are just signs and he will get overit.

After a year, he didn’t start getting better, he actually got worse, he became a different person. No one was listening to me and so I becamedepressed and hid at home with this person who was losing their mind. One day I was cleaning and I found a bunch of hard things in hisvomit, I thought that he was eating rocks, but when I cleaned them it was really a bunch of undissolved pills and I knew something then waswrong. I found out that he had an addiction to pain killers. This thing that I had been blaming on concussions is actually an addiction, heonce told me he was scared to get addicted, and for some reason I didn’t believe him. I talked with his doctors and they said that thisdepression and aggression could come with taking too many pain killers. I looked around our house and found tons of bottles, of alldifferent pain killers. I knew he was in a lot of pain, he had 8 pins in each of his shoulders, ankle surgeries, hip problems, he could barelywalk from the NFL. I confronted him about it and I told him I couldn’t put up with all of this abuse and crazy behavior because of the pills. Itold him ‘you’re hurting me because of these pills.” He didn’t stop and I didn’t know how hard it was to stop. It made the relationship worseand I ended up in the hospital. My family found out and like any loving family they make you break up. Him and I came to an agreementthat we would reconnect in a year when he was clean and maybe things would be different. Because when you are in love you can forgiveanything and I had already forgiven him.

One year came, and we talked to each other and he said he needed me to come. I said “no, you have a girlfriend now, I see you are clean,things are good, I’ll see you in a few months. Bye.” Now I wish I would have asked him how he was doing, but I didn’t, I just trusted socialmedia. A few weeks later he overdosed from painkillers. He was used to taking a lot and knew what he could and could not mix, butsomehow he took a deadly combination of painkillers that night and passed away in his sleep.

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After our initial breakup, I spiraled into depression. I started looking into cannabis and seeing how everyone was talking about it as a formof pain relief. I wished then that I had told him that I had found out he was right, but I had an ego, I was Miss Iowa and I didn’t want to tellanyone because I did not want to be judged and I didn’t want him to tell me if I had just let him smoke vs taking pills we would still betogether. My ego got the best of me. After he died though I said “fuck it, everyone who is going to judge me, I don’t care, I feel dead myself.Nothing can be worse than this feeling, no amount of judgment can be worse than this feeling.” So, I just came out and started AUBox. Ijust wanted to make people feel comfortable and make someone like me, who was just so ignorant about it feel like its approachable. Tohelp me help others. A long story, but that’s how I got into cannabis. It was a long, painful, depressing road with a lot of therapy and I’mlucky to still be here, but that’s why I’m so passionate about this now.

Yegor (https://en.wikipedia.org/wiki/Egor_Lavrov) described himself as the “guy who brought the internet to Russia.” He told me that Russians arenow on the back end of every major blockchain project and that “we (Russians) missed the DotCom bubble, the social times of the Internet, butnow they are leading the blockchain, they are very proud of it.” When he and Jessica started up their project, he was able to draw from his longhistory connections to create a deep, experienced team, which he said he was “very lucky to have.”

Egor himself started the first internet magazine in Russia Planeta Interneta and sold it for 2 million dollars when he was 16. He was in charge of thepresidential campaign of Umar Dzhabrailov who ran for russian presidency and later supported several projects for Putin’s next candidacy. Lavrovpreviously operated several businesses out of the Dominican Republic centered around luxury goods. Business Wire described him as follows in2008:

“Lavrov is a new generation Russian millionaire. He made his fortune with various Internet companies and through political PR. Now residing in theDominican Republic, his Grupo Lavroff is involved in such wide ranging areas as construction, financial advising, advertising and PR. His companyis also the authorized Latin American distributor for luxury brands like Apple and Bang and Olufsen. He owns one of the hottest restaurants inSanto Domingo, Pravda Sushi Bar and Lounge.”

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Later he launched Zila Ventures, which launched the app Friends Around.

Strengths and WeaknessesParagon has huge advantages in terms of funding and tech knowledge on their team. With a quarter of their final $100 million already raised, theyare well on their way to having a successful launch. From my conversation though, their knowledge is limited to California and primarily the SF Bayarea. The regulatory landscape is completely different in every state and what works in SF, may not work in smaller, more rural areas likeColorado. More so, Paragon is a newcomer to a business sector already a decade old. Tracking services and databases already exist and are runby for-profit private companies who keep their data guarded.

What I worry about is that while Paragon wants to grow through community building and openness, they may be excluded and shut out in variousstates if they don’t join politics. They need to fight for their adoption, even if done by force through law. If they reach their hard cap of $100 million,Paragon will be uniquely set up to do exactly this. While Jessica may not have the political aspirations to lead a movement towards implementationof the blockchain in the cannabis industry, her story and background resonates deeply and would give her a strong platform to voice her calls forlegalization and adoption of Paragon. Until cannabis is fully legalized in the United States, her position as leader and CEO should drive her furtherand further into the political machine.

These lofty goals though have to be grounded though in their business. The heart of what they are trying to do is set up green co-working spaces,using the crowdsale raise to purchase commercial space starting in SF and then elsewhere. Eventually they want to have 20 centers around theworld setup using their blockchain. Paragon’s roadmap has them purchasing their first property in the SF Bay area in February 2018 and thenopening it up in November 2018.

Neither Jessica or Egor have been in the cannabis industry for very long. Speaking with them, they were open about their lack of full knowledgeabout the industry in the States and abroad, but they were clear and truthful about this. They said they needed help from industry leaders, retailstore owners, growers and others connected to help develop their project and allow it to succeed.

Token SaleDuring the token sale, Paragon will issue a total of 200 million coins, with a 100 million being distributed during the first offering. 50 million will bereserved for a later sale and the other 50 million will be held in reserve for both Paragon and the community.

The token sale will be conducted in three phases. Currently, the pre-sale is ongoing and follows the below timeline

The actual crowdsale will launch on September 15, with the initial price per coin set at $1. For the first 5 hours of the sale, a 5% discount will beavailable. Then after 24 hours, the price of the coin will rise $0.05 every day for 30 days.

ConclusionIt’s hard not to like Paragon. CEO Jessica Versteeg is extremely charismatic and she comes from a very loving place and wants to embrace,involve and support the cannabis community. I haven’t mentioned the celebrity endorsements from the Game in the article because I wanted tolook through the hype and narratives built around Paragon right now. At its core, the team have some interesting ideas for their blockchain, theyPrivacy - TermsPrivacy - Terms

believe that “they are just another crop” which needs the blockchain to disrupt the current centralized supply chains. However, these aspirationswill come behind the company’s primary goal of setting up and operating ParagonSpace around the country. Both Shaun and I were impressedafter our two and a half hour call with Jessica and Egor. Shaun especially was deeply interested in the project as someone with years in theindustry and hearing his stamp of approval calmed a lot of doubts I had. If they are willing to work with the industry and fight for their incorporation,I don’t see why they can’t become the global cannabis blockchain in the future.

Stephen

August 25, 2017 at 10:56 pm (https://smarticoinvestor.com/paragoncoin/#comment-49)

From an analytical perspective, removing the ‘story of Jessica’ and her traumatic experience there is nothing special with this coin.It is purely something funded by some people who have money behind them, but this would not be a good long term investment. Iwould be skeptical to invest in this coin, anything to do with cannabis is something I wouldn’t touch because of the politics andregulations that you have to deal with. You said it in the article, that lobbying expenses would be critical. There are alreadycompanies that do this stuff, and I feel it’s another gimmick using the word blockchain to make it sound great.

Thanks for the analysis.

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Dr. Satan

September 28, 2017 at 2:02 am (https://smarticoinvestor.com/paragoncoin/#comment-95)

Millenials robbing baby boomers bank accounts?

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David Monkman

January 24, 2018 at 3:59 pm (https://smarticoinvestor.com/paragoncoin/#comment-208)

haha Dr.Satan, You’re blaming your mistake to buy something at $2. I got in at $0.2 and I’m a baby boomer. I sold at $0.7 making a3.5x and then re bought at 40 cents. And currently holding PRG bag.

A full bag…If you bought at a high price, you definitely need to understand you did it wrong, not the ICO team.

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CryptoFriend

January 24, 2018 at 3:53 pm (https://smarticoinvestor.com/paragoncoin/#comment-207)

I suggest you to see the progress in Cannabis industry.

What Cannabis coins do we have now ?

HEMPCOIN, PRG, CANN, Pot coin. If you clearly compare all of these, you will see PRG to be the best amongst all of this. Ofcourse, the founders have a positive influence on the coin, that is why PRG became the biggest ICO around at $183 Million …

See where is the cannabis industry going

https://www.cnbc.com/2018/01/04/medmens-largest-marijuana-marketing-campaign-hits-los-angeles.html(https://www.cnbc.com/2018/01/04/medmens-largest-marijuana-marketing-campaign-hits-los-angeles.html)

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Vladimir Stroganov

August 25, 2017 at 11:27 pm (https://smarticoinvestor.com/paragoncoin/#comment-50)

“Father of the Russian Internet” – total bullshit and lie, nobody knows him in Russia.

They’ve been caught manipulating votes on Reddit. Their ICO model allows them to make up numbers since they don’t use atrustless ethereum smart contract.

Lavrov was hitting his wife (http://mugshots.com/US-Counties/Florida/Miami-Dade-County-FL/Egor-Lavrov.68139389.html(http://mugshots.com/US-Counties/Florida/Miami-Dade-County-FL/Egor-Lavrov.68139389.html))

The project is a scam, please don’t send them your money.

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Mario E

January 24, 2018 at 4:00 pm (https://smarticoinvestor.com/paragoncoin/#comment-209)

Well last I heard was Father of Russian internet and Founder of PRG was also cousin to Vladimir Putin no?!?!

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Antonette (Http://Www.Artbeatfoundation.Org)

August 26, 2017 at 6:52 am (https://smarticoinvestor.com/paragoncoin/#comment-51)

I really appreciated this article! Super well thought out and it addresses many of the questions I had. I must say that I too reactedwith skepticism at first– but after reading more about the plan & checking the team out, i’m really impressed. thanks for this article!

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Scott (Http://Www.Farm.Com)

August 26, 2017 at 1:55 pm (https://smarticoinvestor.com/paragoncoin/#comment-52)

I feel badly for Jessica …. that a man would beat his wife into submission over this after losing the true love of her life. The guy isno hero…and he is manipulating her story into a real estate play where the 100 million dollars would be used to buy real estatewhere the coin holders have to pay him again and again and again. What a SCAM!!!

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Pam (Http://Www.Farm.Com)

August 26, 2017 at 1:59 pm (https://smarticoinvestor.com/paragoncoin/#comment-53)

Wow! What is this??????? Jessica? His wife??? with Lavrov? And they want to change the world for good? Looks like it’s all about the $$$$$$$$$$$$$$$$$$$$

https://www.youtube.com/watch?v=yxZ1TBzv_SM (https://www.youtube.com/watch?v=yxZ1TBzv_SM) https://www.youtube.com/watch?v=FSXm0XJvMf4 (https://www.youtube.com/watch?v=FSXm0XJvMf4)

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Admin

August 28, 2017 at 11:16 am (https://smarticoinvestor.com/paragoncoin/#comment-61)

You don’t know much about Russian culture do you.

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Crypto Stud

January 24, 2018 at 10:30 pm (https://smarticoinvestor.com/paragoncoin/#comment-215)

hehehe PAM, Its all about $$$$$ for every one. You think Youre into crypto for donating to Melinda and Gates ? eh ?

If you say yes, I haven’t seen a bigger idiot then yourself. Well if youre interested in videos, let me share some constructive ones.Then see the following:

http://paragoncoinreview.com/ (http://paragoncoinreview.com/)

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George

August 26, 2017 at 4:07 pm (https://smarticoinvestor.com/paragoncoin/#comment-54)

The white paper proposes much more than the real estate venture. In places where cannabis is legal it is important to bringaccountability to the process. This is why people are excited about Paragon. If you don’t work in the industry or live in a placeeffected then I can see your hesitation, but then maybe it’s just not for you? For us it’s important and I think the Paragon ream istotally credible with some fantastic ideas.

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George

August 26, 2017 at 4:09 pm (https://smarticoinvestor.com/paragoncoin/#comment-55)

The white paper proposes much more than the real estate venture. In places where cannabis is legal it is important to bringaccountability to the process. This is why people are excited about Paragon. If you don’t work in the industry or live in a placeeffected then I can see your hesitation, but then maybe it’s just not for you? For us it’s important and I think the Paragon team istotally credible with some fantastic ideas.

REPLY (HTTPS://SMARTICOINVESTOR.COM/PARAGONCOIN/?REPLYTOCOM=55#RESPOND)

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Anonymous

August 27, 2017 at 1:25 am (https://smarticoinvestor.com/paragoncoin/#comment-56)

Smells fishy

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Steve (Http://Reddit.Com)

August 27, 2017 at 11:39 am (https://smarticoinvestor.com/paragoncoin/#comment-58)

It is a scam coin, google it.

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Don (Http://Vmware.Com)

August 28, 2017 at 4:11 pm (https://smarticoinvestor.com/paragoncoin/#comment-66)

SCAM COIN DO NOT INVEST. THEY HAVE BEEN REPORTED TO THE SEC …..

https://www.reddit.com/r/CryptoCurrency/comments/6w7wzs/biggest_crypto_scam_going_on_right_now/(https://www.reddit.com/r/CryptoCurrency/comments/6w7wzs/biggest_crypto_scam_going_on_right_now/)

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The Game

August 30, 2017 at 9:50 pm (https://smarticoinvestor.com/paragoncoin/#comment-72)

Lavrov commenting on his own company. really dude? so scammmy….people already want out of your currency and trying to sellit before it goes on the exchanges…what does that tell you?

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Beniza

November 22, 2017 at 6:05 am (https://smarticoinvestor.com/paragoncoin/#comment-154)

I bought the premier (and most expensive in the bay area) dinosaur kale at Whole Foods. It had a dewy smooth texture that sangfreshness. I cooked and ate the Kale. It was delicious. I couldn’t give 2 mouse nuts on: was it heritage kale, it’s genealogy or it’sbeginning origin that ended up in my intestines. I don’t have the time or inclination to care or be curious. Neither does your run-of-the-mill pot head (soccer mom). I’ve advised the cannabis industry for eons and always chuckle when some scammer or pseudo-expert comes along with“scientist” credentials on the insight into how to create the best and brightest product. The only one’s that care are the profiteers.With that said, the vapid eye candy and the Russian 2nd rate programmer are the winners as their windfall will sustain their Botoxbinges and Osetra extravagances for many moons. Kudos to their clever deception.

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Zaciss

January 24, 2018 at 4:13 pm (https://smarticoinvestor.com/paragoncoin/#comment-210)

Paragon coin is the premiere cannabis coin. It was launched in Oct last year and its ICO has been one of the biggest and mostsuccessful crowd-sales last year.

Post ICO there have been a couple of hits and misses. Like the fake news took over the social media, Paragon was called a scamcoin by circles with defamation and frivolous intent. The same circles which called EOS a scam and today they want to suicidethey didnt buy the coin at $0.9 when its $10 plus in months.

REPLY (HTTPS://SMARTICOINVESTOR.COM/PARAGONCOIN/?REPLYTOCOM=210#RESPOND)

Patrongist REPLY (HTTPS://SMARTICOINVESTOR.COM/PARAGONCOIN/?REPLYTOCOM=211#RESPOND)Privacy - TermsPrivacy - Terms

January 24, 2018 at 4:15 pm (https://smarticoinvestor.com/paragoncoin/#comment-211)

Yea but you know what…they sold this ICO for $2 and it dived to $0.2 giving a deadly loss to everyone

Zaciss

January 24, 2018 at 4:16 pm (https://smarticoinvestor.com/paragoncoin/#comment-212)

Well, Number is just an element, there are scores of other things. See the tech, the team, the roadmap. You need toread the following to realize what I’m talking about:

https://www.reddit.com/r/ParagonCoin/comments/7s9dyx/so_whats_paragon_coin_all_about/(https://www.reddit.com/r/ParagonCoin/comments/7s9dyx/so_whats_paragon_coin_all_about/)

REPLY (HTTPS://SMARTICOINVESTOR.COM/PARAGONCOIN/?REPLYTOCOM=212#RESPOND)

David Monkman

January 24, 2018 at 4:18 pm (https://smarticoinvestor.com/paragoncoin/#comment-214)

dont fall for negative news, I just know that I need to have logic, I need to see work being done and the whitepaper having answersto all the strategies that the coin will employ. Luckily, Paragon had both. I’m glad I didn’t fall for the fake FUD and bought the coin.

See the latest update on their facebook page, theyre very much active. They went to North American Bitcoin conference lastweekend.

https://www.facebook.com/paragoncoin/?ref=br_tf (https://www.facebook.com/paragoncoin/?ref=br_tf)

REPLY (HTTPS://SMARTICOINVESTOR.COM/PARAGONCOIN/?REPLYTOCOM=214#RESPOND)

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EXHIBIT 11

by Christine Masters , 29 January

Prodeum ICO Exits with a Prank, NoReal HaulProdeum, a project that promised everything was fine, suddenly went off the radar.

There are ICOs that merely anger backers when they delay the beta release a couple of months. Andthen, there are ICOs that promise a lot, only to disappear completely.

And while the case of Confido was extremely disturbing, it turns out not to be the last one. Now,Prodeum, an ICO that had everything running seemingly smooth, with Twitter updates until the last - jusbefore the side prodeum.io disappeared, adding insult to injury with an obscene message.

Prodeum just milked all their investors out of millions, then changed their website to this. I'm finding it hard to hate them at this point. #bitcoin #prodeum #ico #crypto #cryptocurrency #blockchain #tech #initialcoinoffering #investing #finance #investment #ethereum #ripple12:07 - 28 січ. 2018

Lisa Kilker@lisakilker

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Before deleting its tweets, Prodeum ran a campaign of having its domain written in ink over people's skas they sent in selfies. In the end, the ICO turned into a disturbing combination between a cash grab ana college prank.

The initial idea of Prodeum was to track produce supply chains, via the PIIT token.

Since then, all the profiles for the ICO have disappeared. But even before Prodeum went missing, usernoticed faked pictures on the site.

Prodeum originated in Lithuania, a former Eastern Bloc country where new technologies have beentaken up, offering up a hope of fast wealth. And it was indeed fast for Prodeum, although the exactnumber of Ethereums gathered is unknown.

In the case of Confido, scammed customers made a lot of noise immediately. But with this relativelyobscure ICO, it is unknown if anyone lost significant funds. Prodeum pulled its exit prank just eight daysafter the ICO closed, and had a much lower profile compared to Confido. It is not even known whetherany tokens were distributed.

The only trace left of Prodeum is a white paper document on Google Docs.

The address given for ICO fundraising (0x931D387731bBbC988B312206c74F77D004D6B84b) showethat Prodeum actually did not manage to draw more than a pittance of Ethereum. So the exit prank mahave been an over-reaction to a failed business model. Next to the recent theft of $600 million's worthof NEM tokens, the Prodeum seems like only a harmless prank.

Yet it still serves as a cautionary tale of what may happen if fully-backed ICO teams decide to disappealeaving backers empty-handed.

11 35 39

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EXHIBIT 12

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1 Case No. 18-cv-00671 CLASS ACTION COMPLAINT FOR VIOLATION OF SECTIONS 12(A)(1) AND 15(A) OF THE

SECURITIES ACT OF 1933

Rosemary M. Rivas (State Bar No. 209147) Email: rrivas@zlk.com LEVI & KORSINSKY, LLP 44 Montgomery Street, Suite 650 San Francisco, California 94104 Telephone: (415) 291-2420 Facsimile: (415) 484-1294 Eduard Korsinsky (to be admitted pro hac vice) Email: ek@zlk.com LEVI & KORSINSKY, LLP 30 Broad Street, 24th Floor New York, New York 10004 Telephone: (212) 363-7500 Facsimile: (212) 636-7171 Donald J. Enright (to be admitted pro hac vice) Email: denright@zlk.com John A. Carriel (to be admitted pro hac vice) Email: jcarriel@zlk.com LEVI & KORSINSKY, LLP 1101 30th St., NW, Ste. 115 Washington, DC 20007 Telephone: (202) 524-4292 Facsimile: (202) 333-2121 Counsel for Plaintiff Astley Davy

UNITED STATES DISTRICT COURT

FOR THE NORTHERN DISTRICT OF CALIFORNIA

ASTLEY DAVY, individually and on behalf of all

others similarly situated,

Plaintiff,

v. PARAGON COIN, INC., JESSICA VERSTEEG, and EGOR LAVROV,

Defendants.

Case No. 18-cv-00671

CLASS ACTION

CLASS ACTION COMPLAINT FOR

VIOLATION OF SECTIONS 12(a)(1) AND

15(a) OF THE SECURITIES ACT OF 1933

JURY TRIAL DEMANDED

Plaintiff Astley Davy (“Plaintiff”), individually and on behalf of all other persons similarly

situated, by his undersigned attorneys, alleges in this Complaint for violations of Sections 12 and 15 of

the Securities Act of 1933 (the “Securities Act”), the following based upon knowledge with respect to

his own acts, and upon facts obtained through an investigation conducted by his counsel, which

Case 3:18-cv-00671 Document 1 Filed 01/30/18 Page 1 of 23

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2 Case No. 18-cv-00671 CLASS ACTION COMPLAINT FOR VIOLATION OF SECTIONS 12(A)(1) AND 15(A) OF THE

SECURITIES ACT OF 1933

included, inter alia: documents and solicitation materials released by Defendants (defined below), in

connection with the Paragon ICO (defined below), public statements made by Defendants concerning

Defendant Paragon Coin, Inc. (“Paragon”) and the Paragon ICO, and media publications concerning

Paragon and the Paragon ICO. Plaintiff believes that further substantial evidentiary support will exist

for the allegations set forth herein after a reasonable opportunity for discovery. Many of the facts

supporting the allegations contained herein are known only to Defendants or are exclusively within

their control.

NATURE AND SUMMARY OF THE ACTION

1. Plaintiff brings this action on behalf of himself and all others similarly situated against

Paragon, Jessica VerSteeg (“VerSteeg”), Egor Lavrov (“Lavrov,” together with VerSteeg, the

“Individual Defendants,” and collectively with Paragon, “Defendants”) for their violations of

Sections 12(a)(1) and 15(a), 15 U.S.C. §§ 77l(a)(1), 77o(a), of the Securities Act. Specifically, in

connection with Paragon Initial Coin Offering (the “Paragon ICO”), which ran from approximately

August 15, 2017 through October 16, 2017, Defendants raised at least $70 million in digital

cryptocurrencies by offering and selling unregistered securities in direct violation of the Securities Act.

2. From August 15, 2017 through September 15, 2017, Defendants ran the Paragon ICO

“presale” during which time they purportedly “sold out” of 70,000,000 ParagonCoins (“PRG Tokens”)

priced between $0.75 and $0.90 per PRG Token.1 From September 15, 2017 through October 16, 2017,

Defendants ran the Paragon ICO “crowd sale,” during which time PRG Tokens were offered and sold

for $1 each on the first day and the price thereafter increased by $0.05 per day until the close of the

Paragon ICO. Such price increases were clearly designed to entice early investments.2

1 See JD Alois, The Paragon ICO is Just Killing it as the Token Pre-Sale Sells Out, Crowdfundinsider.com (Sept. 26, 2017, 10:30 p.m.), https://www.crowdfundinsider.com/2017/09/122405-paragon-ico-just-killing-token-pre-sale-sells/. 2 To note, Defendants also reduced the prices of PRG Tokens by offering “bonuses” as the Paragon ICO went on, resulting in a baiting of early investors, as well as late or repeat investors. For example, Defendants emailed Plaintiff on September 27, 2017, after he had already invested, a “promo code” offering a 25% bonus on his next purchase of PRG Tokens. As the Paragon ICO neared its conclusion, the offered “bonus” percentages likewise increased. For example, Defendants emailed Plaintiff promo codes on October 3, 2017, and October 12, 2017, offering 40% and 55%, respectively, in bonus PRG Tokens for any subsequent purchase.

Case 3:18-cv-00671 Document 1 Filed 01/30/18 Page 2 of 23

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3 Case No. 18-cv-00671 CLASS ACTION COMPLAINT FOR VIOLATION OF SECTIONS 12(A)(1) AND 15(A) OF THE

SECURITIES ACT OF 1933

3. On November 2, 2017, Defendants emailed Paragon ICO investors an update which

indicated that during the Paragon ICO “crowd sale” they had collected 533 BTC and 8,092 ETH—

worth approximately $7.3 million and $10.2 million, respectively, as of January 12, 2018. In this

update, Defendants also stated that these amounts did not include any of the cryptocurrencies they

collected during the Paragon ICO “presale.” Given that Defendants have represented that the Paragon

ICO “presale” sold 70,000,000 PRG Tokens at a minimum price of $0.75,3 and that the Paragon ICO

“crowd sale” raised 533 BTC and 8,092 ETH, these representations indicate that Defendants collected

at least $70 million during the Paragon ICO.4

4. Defendants’ purported goal, or “mission statement,” in conducting the Paragon ICO

was:

Paragon seeks to pull the cannabis community from marginalized to mainstream by building blockchain into every step of the cannabis industry and by working toward full legalization. Our strength lies in the unique blockchain/cannabis connection that uses smart contracts. We believe in blockchain, and we believe in the benefits of cannabis. More uses of cannabis are coming to light, and we want to accelerate that process. We believe cannabis is good for individuals and good for countries. We are passionate about moving forward in an ethical, morally responsible, and legal way.5

5. In other words, Defendants marketed the Paragon ICO as offering a path towards

legalization of cannabis and a way to solve nearly every issue facing the cannabis industry. As

discussed herein, the Paragon ICO was in actuality a way for Defendants to raise capital to purchase

real estate.

6. Depending on the date in which the investment was made, the core offer during the

Paragon ICO was 1 PRG Token for $0.75–$2.50, payable in Bitcoin (“BTC”), Ether (“ETH”), Litecoin

(“LTC”), Dashcoin (“DASH”), Zcash (“ZEC”), Ripple (“XRP”), Monero (“XMR”), Ethereum Classic

(“ETC”), or Waves coin (“WAVES”). The Paragon ICO was a clear offer and sale of securities,

3 Supra, note 1.

4 One website that tracks the amount of funds raised by initial coin offerings estimates that the Paragon ICO raised over $74 million. See Top10BestUpComingICOS.com, https://top10bestupcomingicos.com/partners/paragon/ (last visited Jan. 30, 2018) (stating the Paragon ICO raised $74,647,589). 5 See Paragon, Paragon Whitepaper Version 1.0, (2017), https://paragoncoin.com/whitepaper.pdf at pg. 7.

Case 3:18-cv-00671 Document 1 Filed 01/30/18 Page 3 of 23

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4 Case No. 18-cv-00671 CLASS ACTION COMPLAINT FOR VIOLATION OF SECTIONS 12(A)(1) AND 15(A) OF THE

SECURITIES ACT OF 1933

because, inter alia, Defendants advertised, and Plaintiff and other Paragon ICO investors reasonably

expected, that the PRG Tokens would be worth more than the ETH, BTC, LTC, DASH, ZEC, XRP,

XMR, ETC, or WAVES (collectively, the “Funds”) they invested. Additionally, Defendants have

explicitly referred to Paragon ICO participants as “investors” and repeatedly stressed their intention to

“keep the value of PRG strong and growing,”6 and that PRG Tokens would be “long term growth

assets.”7

7. The Securities Act’s registration requirements are designed to protect investors by

ensuring they are provided adequate information upon which to base their investment decisions. Absent

registration, issuers of securities are able to tout their investment opportunities with no limitations

whatsoever. For example, an issuer could omit any information that would make a potential investor

think twice before investing (e.g., conflicts of interest or major setbacks to core product lines), or peddle

its securities using unbounded exaggerations regarding the progress of its products, business plan,

business strategies, or even fabricate the existence of relationships with vendors or other business

partners.

8. Due to the varied and innumerable ways in which investors can be, and are likely to be,

manipulated and harmed absent any of the protections under the federal securities laws, Sections 5 and

12(a)(1) of the Securities Act provide for strict liability against any person who offers or sells an

unregistered security. As detailed herein, the Paragon ICO was, and has been at all times, been an offer

and sale of unregistered securities and thus, Defendants are strictly liable under Section 12(a)(1) of the

Securities Act.

9. Importantly, proof of deceptive activity or calculated deprivation of investors’ rights

and protections under the federal securities laws is not required or determinative as to Plaintiff’s claim.

This is because Defendants are liable simply by virtue of having offered and sold unregistered securities

during the Paragon ICO. Nevertheless, Defendants’ deceptive activities are outlined herein to stress

the urgency and need for immediate judicial intervention to preserve Plaintiff’s and other Paragon ICO

investors’ significant financial interests which Defendants currently control, and to rectify existing and

6 Id. at pg. 15. 7 Id. at pg. 31.

Case 3:18-cv-00671 Document 1 Filed 01/30/18 Page 4 of 23

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5 Case No. 18-cv-00671 CLASS ACTION COMPLAINT FOR VIOLATION OF SECTIONS 12(A)(1) AND 15(A) OF THE

SECURITIES ACT OF 1933

future irreparable harm to Plaintiff and Paragon ICO investors. For these reasons, Plaintiff on behalf

of himself, and all similarly situated Paragon ICO investors, seeks compensatory, injunctive, and

rescissory relief, which would provide rescission and repayment of all investments into the Paragon

ICO, as well as secure and conserve such funds until repayment.

JURISDICTION AND VENUE

10. This Court has subject matter jurisdiction under 28 U.S.C. § 1331 (federal question

jurisdiction) and Section 22 of the Securities Act (15 U.S.C. § 77v) because Plaintiff alleges violations

of Sections 12(a)(1) and 15(a) of the Securities Act.

11. This Court has personal jurisdiction over each of the Defendants because each either

conducts business in and maintains operations in this District or is an individual who either is present

in this District for jurisdictional purposes or has sufficient minimum contacts with this District as to

render the exercise of jurisdiction by this Court permissible under traditional notions of fair play and

substantial justice.

12. Venue is proper in this District under Section 22 of the Securities Act, 15 U.S.C. § 77v,

as well as under 28 U.S.C. § 1391, because: (a) the conduct at issue took place and had an effect in this

District; (b) a substantial portion of the corporate transactions and wrongs complained of herein

occurred here; and (c) Defendants have received substantial compensation and other transfers of money

here by doing business here and engaging in activities having an effect in this District.

PARTIES AND RELEVANT NON-PARTIES

13. Plaintiff invested in the Paragon ICO on September 21, 2017, September 23, 2017,

September 28, 2017, September 30, 2017, October 3, 2017, and October 15, 2017, by transmitting

0.04095 BTC, 0.03975 BTC, 0.57855 ETH, 0.0231 BTC, 0.03495 BTC, and 0.04579484 BTC,

respectively, to Defendants.

14. Defendant Paragon is a Delaware corporation that was incorporated on July 6, 2017.

Defendant Paragon is controlled by Defendant VerSteeg and Defendant Lavrov. Defendant Paragon is

the “operating entity” for the PRG Token project.8

8 Id. at 38.

Case 3:18-cv-00671 Document 1 Filed 01/30/18 Page 5 of 23

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6 Case No. 18-cv-00671 CLASS ACTION COMPLAINT FOR VIOLATION OF SECTIONS 12(A)(1) AND 15(A) OF THE

SECURITIES ACT OF 1933

15. Defendant VerSteeg is the Chief Executive Officer (“CEO”) and founder of Defendant

Paragon. Defendant VerSteeg is a former Miss Iowa and Amazing Race participant. In 2016,

Defendant VerSteeg founded AuBox, a marijuana delivery service, that is “on pause” while Defendant

VerSteeg focuses on Defendant Paragon’s operations.9 Defendant Versteeg resides in the State of

California, within the District.

16. Defendant Lavrov is the “Chief Creative Officer” and founder of Defendant Paragon.

Defendant Lavrov describes himself as a “serial entrepreneur” who has had “multiple multimillion

dollar exits.” Defendant Lavrov claims to have created numerous successful ventures. Such ventures

have included: two phone game app development companies, Zila Networks and Karma World LLC,

and Pravda Sushi Bar & Lounge—all three of which are defunct. Additionally, Defendant Lavrov

founded tattolizator.com, a website launched to run an online contest for artists to submit work that

Defendant Lavrov would then have tattooed on himself. For this project, Defendant Lavrov issued a

press release on Business Wire, in which he described himself as a “leading luxury life figure” that was

a “cult figure” for a “new group of rich young Russians defined by their conspicuous consumption as

well as their open disdain for poverty.”10 Currently, Defendant Lavrov holds himself out as a venture

capitalist that runs “Zila Ventures,” which has a team of one—Defendant Lavrov.11 Zila Ventures

claims to have three portfolio companies: AuBox (Defendant VerSteeg’s company); Proffi, Inc. (a

company that has no online presence other than a single sentence on the Zila Ventures’ website); and

Peak Mediation, Inc. (a marketing company that claims to “Guarantee to Double Your Profit”).12

Defendant Lavrov also holds himself out as the CEO of Peak Mediation, Inc. Defendant Lavrov is

believed to have residences in the State of California and the State of Florida.

9 See Emerson Woods, Featured Cannapreneur Jessica Versteeg, CEO of Paragon Coin, (Oct. 28,

2017), https://cannabismagazine.com/jessica-versteeg-ceo-paragon-coin/.

10 See Innovative Tattoo Design Contest at Tattoolizator.com Invites Entrants to make Their Make on

a Millionaire, BusinessWire.com (July 24, 2008), https://www.businesswire.com/news/home/200807

24005337/en/Innovative-Tattoo-Design-Contest-Tattoolizator.com-Invites-Entrants.

11 See ZilaVentures, http://zilaventures.com/ (last visited Jan. 30, 2018).

12 See Peak Mediation, https://peakmediation.com/about.html (last visited Jan. 30, 2018).

Case 3:18-cv-00671 Document 1 Filed 01/30/18 Page 6 of 23

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7 Case No. 18-cv-00671 CLASS ACTION COMPLAINT FOR VIOLATION OF SECTIONS 12(A)(1) AND 15(A) OF THE

SECURITIES ACT OF 1933

17. Defendant VerSteeg and Defendant Lavrov have been married to each other at all

relevant times referred to herein.

CLASS ACTION ALLEGATIONS

18. Plaintiff brings this action individually and as a class action on behalf of all investors in

the Paragon ICO who are being, and will be, harmed by Defendants’ actions described herein (the

“Class”), absent judicial intervention. Excluded from the Class are Defendants herein and any person,

firm, trust, corporation, or other entity related to, controlled by, or affiliated with, any Defendant,

including the immediate family members of the Individual Defendants.

19. This action is properly maintainable as a class action under the Federal Rules of Civil

Procedure 23.

20. While the exact number of Class members is presently unknown to Plaintiff and can

only be ascertained through discovery, Plaintiff believes that there are thousands of members in this

Class. All members of the Class may be identified by records maintained by Defendants and may be

notified of the pendency of this action by mail, using forms of notice similar to that customarily used

in securities class actions.

21. There are questions of law and fact which are common to the Class and which

predominate over questions affecting any individual Class member. The common questions include,

inter alia, the following: (i) whether Defendants offered and sold unregistered securities, in violation

of the federal securities laws, to the Class during the Paragon ICO; (ii) whether Plaintiff and other Class

members will suffer irreparable harm if such securities laws violations are not remedied; and

(iii) whether the Class is entitled to injunctive, compensatory, and/or rescissory relief as a result of

Defendants’ wrongful conduct as alleged herein.

22. Plaintiff’s claims are typical of the claims of the other members of the Class and Plaintiff

does not have any interests adverse to the Class. Plaintiff and the other members of the Class have all

sustained harm in a substantially identical manner as a result of Defendants’ wrongful conduct as

alleged herein.

23. Plaintiff will fairly and adequately protect the interests of the Class and has retained

competent counsel experienced in litigation of this nature.

Case 3:18-cv-00671 Document 1 Filed 01/30/18 Page 7 of 23

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8 Case No. 18-cv-00671 CLASS ACTION COMPLAINT FOR VIOLATION OF SECTIONS 12(A)(1) AND 15(A) OF THE

SECURITIES ACT OF 1933

24. The prosecution of separate actions by individual members of the Class would create a

risk of inconsistent or varying adjudications with respect to individual members of the Class, which

could establish incompatible standards of conduct for Defendants.

25. Plaintiff anticipates that there will be no difficulty in the management of this litigation.

A class action is superior to other available methods for the fair and efficient adjudication of this

controversy.

26. Defendants have acted on grounds generally applicable to the Class with respect to the

matters complained of herein, thereby making appropriate the relief sought herein with respect to the

Class as a whole.

27. Accordingly, Plaintiff seeks injunctive and other equitable relief on behalf of himself

and the Class to prevent the irreparable injury they will continue to suffer absent judicial intervention.

SUBSTANTIVE ALLEGATIONS

Background on the Paragon ICO and the Paragon Business Model

28. On August 15, 2017, Defendants released the Paragon Whitepaper Version 1.0 (the

“Whitepaper”). The Whitepaper described Defendant Paragon as providing solutions for essentially

every issue facing the cannabis industry. The “business model” and Whitepaper—which is replete with

buzz-words relating to cryptocurrency technology—can best be described as overly ambitious, vague,

and impractical.

29. The Whitepaper described Defendant Paragon as having five separate business

segments: “ParagonChain,” “ParagonCoin,” “ParagonSpace,” “ParagonOnline,” and

“ParagonAccelerator.”13 As detailed below, even individually, each of these segments claims to

accomplish fantastic feats and unrealistically address major issues.

30. “ParagonChain” was described as an “immutable ledger for all industry related data.”14

The Whitepaper continues by explaining that the new “ParagonChain” and its use of “smart contracts”

would “save companies hundreds of thousands in reduced paperwork” and provide a “modular toolset

13 Supra, note 5 at pg. 8. 14 Id.

Case 3:18-cv-00671 Document 1 Filed 01/30/18 Page 8 of 23

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9 Case No. 18-cv-00671 CLASS ACTION COMPLAINT FOR VIOLATION OF SECTIONS 12(A)(1) AND 15(A) OF THE

SECURITIES ACT OF 1933

to build applications that can track shipments, verify potency, identify medical patients and their

prescriptions, and a host of applications not yet imagined.”15

31. “ParagonCoin” was described as “offer[ing] payment for industry related services and

supplies.”16 The Whitepaper further describes “ParagonCoin” as being able to “create a global

ecosystem where businesses and consumers can quickly and easily verifiably transfer funds—business

to business, business to consumer, and/or consumer to consumer.”17 Additionally, Defendants stressed:

“[w]e want to keep the value of PRG strong and growing.”18

32. “ParagonSpace” was described as “establish[ing] niche co-working spaces.”19 The

Whitepaper added: “Our mission is to create a safe physical space where advocates can push to repeal

current regulatory restrictions and present information on the benefits of marijuana use for medical

conditions, recreational use, and general well being.”20

33. “ParagonOnline” was described as “organiz[ing] and unit[ing] global legalization

efforts.”21 The Whitepaper described this segment as “ParagonOnline will act as a one-stop service

and platform for cannabis and alternative payment-related scientists, journalists, investors, marketers,

doctors, developers, fintech specialists, entrepreneurs, startups, and lawyers. Because every business

is a human venture, the professional networking potential will be highly beneficial. It will give the

cannabis industry a whole new dimension.”22

34. “ParagonAccelerator” was described as “bring[ing] standardization of licensing, lab

testing, transactions, supply chain and ID verification through apps built” in the accelerator.23 The

Whitepaper further stated: “The ParagonAccelerator is uniquely linked to the growth of the legal

15 Id. at pg. 9. 16 Id. at pg. 8. 17 Id. at pg. 12. 18 Id. at pg. 15. 19 Id. at pg. 8. 20 Id. at pg. 16. 21 Id. at pg. 8. 22 Id. at pg. 21. 23 Id. at pg. 8.

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10 Case No. 18-cv-00671 CLASS ACTION COMPLAINT FOR VIOLATION OF SECTIONS 12(A)(1) AND 15(A) OF THE

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cannabis industry. Our model grows and develops with the industry autonomously, responding to the

demand for new businesses with revolutionary ideas.”24

35. While the Whitepaper claimed that there would be five business segments, it is clear

that Defendants’ actual business model was primarily focused on investing in real estate. Specifically,

the Whitepaper—very briefly–stated, “[t]he lion’s share of the token crowdsale [sic] proceeds will be

spent on real-estate acquisition.”25 Evidently, the Paragon ICO was simply a method for Defendants

to raise capital in order to purchase real estate investments.

The Paragon ICO

36. Defendants began marketing the Paragon ICO in August 2017 by enlisting celebrity

endorsers. For example, in early August 2017, Defendants recruited Jayceon Terrell Taylor, a rapper

known as “The Game,” to help promote the Paragon ICO.26

37. The Paragon Whitepaper explained that “[a] total of 200,000 PRG will be generated”

and that “[t]here will be no further production of tokens so, over time, the tokens in circulation shall

reduce in number and increase in demand.”27

38. The Paragon ICO was marketed as an investment opportunity for persons interested in

the cannabis industry. For example, the Whitepaper stated, “the token crowdsale [sic] will favor

smaller investors who are committed to the cannabis cause and plan on participating in the

community.”28

39. Defendants explained that their organization and plans would “quickly strengthen the

legalization movement and [was] expected to positively influence the demand for and respectively

value of Paragon’s cryptocurrency, PRG.”29

24 Id. at pg. 23. 25 Id. at pg. 18. 26 See, e.g., Frank Chaparro, The Game is promoting the initial coin offering of a company owned by a former Miss Iowa who is looking to usher in the weed revolution, BusinessInsider (Aug. 11, 2017, 5:14 p.m.), http://www.businessinsider.com/rapper-the-game-promoting-weed-company-ico-2017-8. 27 Supra, note 5 at pg. 12. 28 Id. at pg. 14. 29 Id. at pg. 8.

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11 Case No. 18-cv-00671 CLASS ACTION COMPLAINT FOR VIOLATION OF SECTIONS 12(A)(1) AND 15(A) OF THE

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40. Similarly, on September 3, 2017, a publication named “NowThis Weed” published a

video interview with Defendant VerSteeg on Facebook, which Defendants subsequently reposted on

Defendant Paragon’s Facebook page on the same day.30 Following are five screens captures from this

video—each which stated “SOURCE: Paragon”—that clearly exhibit Defendants’ intention to market

the Paragon ICO and PRG Tokens as investment opportunities:

30 See Paragon Coin, Now This Weed’s video, Facebook (Sept. 3, 2017), https://www.facebook.

com/paragoncoin/posts/1924685191113339.

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14 Case No. 18-cv-00671 CLASS ACTION COMPLAINT FOR VIOLATION OF SECTIONS 12(A)(1) AND 15(A) OF THE

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41. Similarly, the Whitepaper stated, “PRG is designed to appreciate in value as our

solutions are adopted throughout the cannabis industry and around the world. Our model incentivizes

PRG owners to hold their tokens as long term [sic] growth assets . . . .”31

42. Indeed, Defendants even stated they would create a separate fund of PRG Tokens that

would be specifically earmarked for manipulating and artificially controlling the price of PRG Tokens.

Specifically, the Whitepaper stated that “40,000,000 [PRG] tokens [would be] allotted for Paragon

controlled reserve to maintain price support of the PRG Tokens.”32 The “Controlled Reserve Fund”

would have “two core functions to keep PRG stable.”33

43. The “Controlled Reserve Fund” would be used to “Release PRG to the markets if PRG

deflates too fast and pushes token prices up too rapidly” or “[b]uy PRG from the market if PRG price

devalues too much.”34 Defendants elaborated on the second “core function” by explaining that “PRG

may become subject to excessive sell volume resulting in a significant drop in price. To counter this,

the Reserve Fund can intervene by buying back PRG in an effort to stabilize the market price.”35

44. Putting aside the illegality of a scheme to blatantly manipulate the market price of PRG

Tokens as a security trading in the marketplace, this intention clearly exhibits Defendants’ message

that the PRG Tokens would be appreciating in value, and thus, represented an investment opportunity.

45. In addition, the Whitepaper’s “Risks” section was almost entirely related to the risk that

the PRG Token might lose its value or not have adequate liquidity. To quote but a few, the Whitepaper

stated:

“You should carefully consider and evaluate each of the following risk factors

. . . the trading price of PRG Tokens (in the case where they are listed on a cryptocurrency exchange) could decline due to any of these considerations,

31 Supra, note 5 at pg. 31. 32 Id. at pg. 13. 33 Id. at pg. 30. 34 Id. at pg. 31. 35 Id.

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15 Case No. 18-cv-00671 CLASS ACTION COMPLAINT FOR VIOLATION OF SECTIONS 12(A)(1) AND 15(A) OF THE

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uncertainties or material risks, and you may lose all or part of your PRG Tokens.”36

“No one is obliged to purchase any PRG Tokens from any holder of the PRG Token, including the purchasers, nor does anyone guarantee the liquidity or market price of PRG Tokens to any extent at any time.”37

“[T]he Company cannot ensure that there will be any demand or market for PRG Tokens, or that the Purchase Price is indicative of the market price of PRG Tokens after they have been made available for trading on a cryptocurrency exchange.”38

“Further sales or issuance of the PRG Tokens could materially and adversely affect the market price of the PRG Tokens.”39

“Negative publicity may materially and adversely affect the price of the PRG Tokens.”40

“[T]he development of the PARAGONCOIN platform and launch of the anticipated PARAGONCOIN future business lines may not be completed and there is no assurance that it will be launched at all. As such, distributed PRG Tokens may hold little worth or value.”41

“Any events or circumstances which adversely affect ParagonCoin, Inc. . . . would correspondingly have an impact on the utility, liquidity, and the trading price of the PRG Tokens.”42

46. As is obvious, the “risks” were primarily tailored to the risks that Paragon ICO

participants would lose their investments due to the PRG Token’s loss in value or lack of liquidity.

47. In short, as stated in a review of the Paragon ICO conducted by Picolo Research:43

1. The token sale structure is extremely complicated

2. A significant amount of funds are used to ‘control the token price’

3. There is no detailed ‘use of proceeds’ or budget

4. The team have not communicated a clear commercial strategy as there are 5 completely different segments

36 Id. at pg. 37. 37 Id. 38 Id. at pg. 38. 39 Id. 40 Id. 41 Id. at pg. 39. 42 Id. at pg. 40. 43 See Picolo Research, Paragon (PGN) An immutable ledger for the marijuana industry, (Sept. 7, 2017), https://picoloresearch.com/26/paragon-pgn/attachment.

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16 Case No. 18-cv-00671 CLASS ACTION COMPLAINT FOR VIOLATION OF SECTIONS 12(A)(1) AND 15(A) OF THE

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5. We believe the use of blockchain within the ecosystem (in this venture) will

be limited

6. There is a strong focus on the establishment of Accelerators and Co-working spaces as opposed to the blockchain initiative

7. The management team appear to be using the current market liquidity as a method of financing for something other than the actual concept

8. It is unknown as to what portion of the funds will be held by management, promoters, etc. . . . .

For the reasons listed above, we believe there is a significant risk associated with

this token sale. If the same structure and offering were presented by a company

that did not put such high profile names to it, we would be on the verge of labeling

such a token sale as 0 stars.44

PRG Tokens Constitute “Investment Contracts”

48. The facts are indisputable that Defendants participated in the offer and sale of PRG

Tokens. Specifically, the Individual Defendants founded Defendant Paragon. “The PARAGONCOIN

platform is developed, operated, and maintained by” Defendant Paragon.45 Given that the Paragon ICO

was conducted by Defendant Paragon, through its website, it is indisputable that the Individual

Defendants, through Defendant Paragon, controlled and orchestrated Defendant Paragon’s actions in

conducting the Paragon ICO.

49. Under the federal securities laws, the definition of a security includes an “investment

contract.” Plaintiff’s and the Class’ investments of ETH, BTC, LTC, DASH, ZEC, XRP, XMR, ETC,

or WAVES constitute an investment of money in an “investment contract.”

50. When determining whether a security has been offered and sold, the focus must be on

the economic realities underlying the transaction. Here, the economic realities are that Plaintiff and the

Class invested their digital cryptocurrencies in order to receive PRG Tokens, which they expected

would be worth more than their ETH, BTC, LTC, DASH, ZEC, XRP, XMR, ETC, and/or WAVES

investments. Plaintiff’s and the Class’ investment of such cryptocurrencies constitutes an investment

of money for the purposes of determining whether an investment involved a security.

44 Id. 45 Supra, note 5 at pg. 38.

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17 Case No. 18-cv-00671 CLASS ACTION COMPLAINT FOR VIOLATION OF SECTIONS 12(A)(1) AND 15(A) OF THE

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51. Plaintiff and the Class were investing in a common enterprise with Defendants, as the

Paragon ICO investments were pooled under the control of Defendants, and the success of Paragon’s

“business model”—and thus potential profits stemming from the future valuation of PRG Tokens—

was entirely reliant on Defendants’ actions. As explicitly provided in the Paragon Whitepaper:

The PARAGONCOIN platform is developed, operated, and maintained by ParagonCoin, Inc. Any events or circumstances which adversely affect ParagonCoin, Inc. or any of its successor operating entities (collectively refered to herein as “ParagonCoin, Inc.”) may have a corresponding adverse effect on the PARAGONCOIN platform and any future business lines. Such adverse effects would correspondingly have an impact on the utility, liquidity, and the trading price of the PRG Tokens.46

52. Additionally, the Whitepaper stated:

ParagonCoin, Inc. may be materially and adversely affected if it fails to effectively manage its business operations as its business develops and evolves, which would have a direct impact on its ability to maintain the PARAGONCOIN platform and/or launch any future business lines.47

53. Accordingly, it is obvious that any success from creating the PRG Token and future

potential increases to the PRG Token’s value was, and continues to be, entirely dependent on

Defendants’ actions.

Necessity for Judicial Intervention

54. On July 25, 2017, the SEC issued a report on “the DAO,” which offered tokens for sale

online, in which the SEC advised those using “distributed ledger or blockchain-enabled means for

capital raising, to take appropriate steps to ensure compliance” with the federal securities laws, and

stated that “[a]ll securities offered and sold in the United States must be registered with the Commission

. . .” or qualify for an exemption from registration. On the same day, the SEC issued an investor bulletin

urging caution when investing in ICOs and to be mindful that promoters and initial sellers that lead

buyers of tokens to expect a return on their investment or participate in shared returns provided by the

project may be offering a security for sale.

46 Id. at pg. 40.

47 Id.

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18 Case No. 18-cv-00671 CLASS ACTION COMPLAINT FOR VIOLATION OF SECTIONS 12(A)(1) AND 15(A) OF THE

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55. On September 29, 2017, the Wall Street Journal reported Chairman Clayton as stating

“I have yet to see an ICO that doesn’t have a sufficient number of hallmarks of a security.” This

statement sums up the core issue here quite succinctly. Digital currencies are a relatively new

phenomenon and various parties are taking advantage of the time it takes for regulatory agencies to

address new developments to engage in unlawful conduct with near impunity, as Defendants have here

by raising tens of millions of dollars with promises of profits and revolutionizing the cannabis industry.

56. On December 1, 2017, the SEC filed a complaint against PlexCorps for selling

unregistered securities in connection with the “PlexCoin Token” ICO. Similarly, on December 11,

2017, the SEC announced that it had shut down an ICO that Munchee, Inc., a California-based online

food review company, had been planning on conducting.

57. On January 4, 2017, the Texas State Securities Board issued an Emergency Cease and

Desist Order against BitConnect, a U.K. based company planning on conducting an initial coin offering.

More recently, on January 25, 2017, the SEC halted an allegedly fraudulent initial coin offering by

securing a court-ordered emergency asset freeze over AriseBank, and its co-founders, which included

appointing a receiver over their assets. It is clear from recent events that the rampant disregard of the

federal securities laws taking place in connection with cryptocurrency offerings has been noted by

regulatory agencies, including the SEC and state regulators. In the meantime, investors like Plaintiff

and the Class have already been wrongfully deprived of the protections of the federal securities laws

by Defendants. Fortunately, the private right of action provided for by Section 12(a)(1) of the Securities

Act was created for just this type of situation, and provides strict liability for the sale of unregistered

securities.

CLAIMS FOR RELIEF

COUNT I

Claim for Violation of Section 12(a)(1) of the Securities Act Against All Defendants

58. Plaintiff repeats and re-alleges the preceding allegations as if fully set forth herein.

59. Section 12(a)(1) grants Plaintiff a private right of action against any person who offers

or sells a security in violation of Section 5, and states that such person,

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19 Case No. 18-cv-00671 CLASS ACTION COMPLAINT FOR VIOLATION OF SECTIONS 12(A)(1) AND 15(A) OF THE

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Shall be liable . . . to the person purchasing such security from him, who may sue either at law or in equity in any court of competent jurisdiction, to recover the consideration for such security with interest thereon, less the amount of any income received thereon, upon the tender of such security, or for damages if he no longer owns the security.

60. From approximately August 15, 2017 through October 16, 2017, in connection with the

Paragon ICO, Defendants unlawfully made use of means or instruments of transportation or

communication in interstate commerce or of the mails for the purposes of offering, selling, or delivering

unregistered securities in direct violation of the Securities Act.

61. The Paragon ICO was a sale of unregistered securities under controlling federal law.

PRG Tokens exhibit the following particular hallmarks of a security under the Howey test: (a) in order

to receive any PRG Tokens an investment of money, in the form of BTC, ETH, and/or other digital

currencies was required; (b) the investment of money was made into the common enterprise that is

Defendant Paragon and its potential future “business lines”; and (c) the success of the investment and

any potential returns on such was entirely reliant on Defendants’ ability to launch the

“PARAGONCOIN platform” and related “business lines.”

62. As such, Defendants have participated in the offer and sale of unregistered securities in

violation of the Securities Act, and are liable to Plaintiff and the Class for rescission and/or

compensatory damages.

COUNT II

Claim for Violation of Section 15(a) of the Securities Act Against All Defendants

63. Plaintiff repeats and re-alleges the preceding allegations as if fully set forth herein.

64. Due to their ownership in and control over Defendant Paragon, the Individual

Defendants acted as controlling persons of Defendant Paragon within the meaning of Section 15(a) of

the Securities Act as alleged herein. By virtue of their positions as officers and/or directors and

participation in and/or awareness of Defendant Paragon’s operations, the Individual Defendants had

the power to influence and control and did influence and control, directly or indirectly, the decision

making relating to the Paragon ICO, including the decision to engage in the sale of unregistered

securities via the Paragon ICO.

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20 Case No. 18-cv-00671 CLASS ACTION COMPLAINT FOR VIOLATION OF SECTIONS 12(A)(1) AND 15(A) OF THE

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65. By virtue of the foregoing, the Individual Defendants are liable to Plaintiff and the Class

as control persons of Defendant Paragon under Section 15(a) of the Securities Act.

PRAYER FOR RELIEF

WHEREFORE, Plaintiff prays for judgment and relief as follows:

A. Declaring that this action is properly maintainable as a class action and certifying

Plaintiff as the Class representative and his counsel as Class counsel;

B. Declaring that Defendants offered and sold unregistered securities in violation of the

federal securities laws;

C. Declaring Defendants are liable to Plaintiff and the Class under Sections 12(a)(1) and/or

15(a) of the Securities Act;

D. Preliminarily enjoining Defendants from making further transfers or dissipations of the

investments raised during the Paragon ICO, or using such funds in any further purchases or

transactions;

E. Requiring an accounting of the remaining funds and assets raised from Plaintiff and the

Class in connection with the Paragon ICO;

F. Imposing a constructive trust over the funds and assets rightfully belonging to Plaintiff

and the Class;

G. Ordering rescission of the investments made by Plaintiff and the Class relating to the

Paragon ICO and/or compensatory damages;

H. Awarding Plaintiff the costs of this action, including reasonable allowance for Plaintiff’s

attorneys’ and experts’ fees; and

I. Granting such other and further relief as this Court may deem just and proper.

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21 Case No. 18-cv-00671 CLASS ACTION COMPLAINT FOR VIOLATION OF SECTIONS 12(A)(1) AND 15(A) OF THE

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JURY DEMAND

Plaintiff respectfully requests a trial by jury on all issues so triable.

Dated: January 30, 2018 LEVI & KORSINSKY, LLP

By: /s/ Rosemary M. Rivas

Rosemary M. Rivas 44 Montgomery Street, Suite 650 San Francisco, CA 94104 Telephone: (415) 291-2420 Facsimile: (415) 484-1294

Eduard Korsinsky (to be admitted pro hac vice) LEVI & KORSINSKY, LLP 30 Broad Street, 24th Floor New York, New York 10004 Telephone: (212) 363-7500 Facsimile: (212) 636-7171 Donald J. Enright (to be admitted pro hac vice) Email: denright@zlk.com John A. Carriel (to be admitted pro hac vice) Email: jcarriel@zlk.com LEVI & KORSINSKY, LLP 1101 30th St., NW, Ste. 115 Washington, DC 20007 Telephone: (202) 524-4292 Facsimile: (202) 333-2121 Attorneys for Plaintiff Astley Davy

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