What Are the Legal Consequences of a Token Being Classified as an Unregistered Security?

The company and its principals face severe legal penalties, including civil and criminal charges from regulators like the SEC. The primary consequence is a violation of securities laws, which can lead to significant fines, disgorgement of all funds raised, and mandatory rescission offers to investors.

This requires the company to buy back the tokens at the original price. For an established company, the reputational damage is also substantial.