Pantera Capital Management said about 25 per cent of the blockchain and digital-currency projects that its ICO fund invested in could be found in violation of U.S. securities laws and may have to refund money to their backers.

The Menlo Park, California-based hedge fund said the projects may be at risk after the U.S. Securities and Exchange Commission’s Nov. 16 announcement that two startups that raised millions by issuing tokens to non-accredited investors didn’t comply with securities laws. One of the projects, Paragon Coin, has already announced it may have to pay back investors.

Many startups -- especially those that conducted initial coin offerings last year -- didn’t register with the SEC, and also sold their tokens to regular people, instead of the more sophisticated accredited investors. As regulators have begun clarifying their positions and revving up policing, the way tokens are issued has undergone drastic changes.

“While we believe the vast majority of the projects in our portfolio should not be affected, approximately 25 per cent of our fund’s capital is invested in projects with liquid tokens that sold to U.S. investors without using regulation D or regulation S," Dan Morehead and Joey Krug, Pantera’s co-chief investment officers, wrote in the newsletter Thursday. “If any of these projects are deemed to be securities, the SEC’s position could adversely affect them. Of these projects, about a third (approximately 10 percent of the portfolio) are live and functional and, while they could technically continue without further development, ending development would hinder their progress.”​