Advertisement
Not a member of Pastebin yet?
Sign Up,
it unlocks many cool features!
- Testimony on “Virtual Currencies: The Oversight Role of the U.S. Securities and Exchange
- Commission and the U.S. Commodity Futures Trading Commission”
- by
- Jay Clayton
- Chairman, U.S. Securities and Exchange Commission
- Before the
- Committee on Banking, Housing, and Urban Affairs
- United States Senate
- February 6, 2018
- Chairman Crapo, Ranking Member Brown and distinguished senators of the Committee,
- thank you for the opportunity to testify before you today.1
- I am pleased that the Committee is
- holding this hearing to bring greater focus to the important issues that cryptocurrencies, initial
- coin offerings (ICOs) and related products and activities present for American investors and our
- markets.
- I am also pleased to join my counterpart, Commodity Futures Trading Commission
- (CFTC) Chairman Christopher Giancarlo, for our second time testifying together before
- Congress. Since I joined the Commission in May, Chairman Giancarlo and I have built a strong
- relationship. Cryptocurrencies, ICOs and related subjects are the latest in a host of market issues
- on which we and our staffs have been closely collaborating to strengthen our capital markets for
- investors and market participants.2
- The mission of the SEC is to protect investors, maintain fair, orderly and efficient
- markets and facilitate capital formation. We do so through our enforcement of the federal
- securities laws and our oversight of the securities markets and their participants including (1)
- approximately $75 trillion in securities trading annually on U.S. equity markets; (2) the
- disclosures of approximately 4,100 exchange-listed public companies with an approximate
- aggregate market capitalization of $31 trillion; and (3) the activities of over 26,000 registered
- entities and self-regulatory organizations, including investment advisers, broker-dealers, transfer
- agents, securities exchanges, clearing agencies, mutual funds, exchange-traded funds (ETFs), the
- Financial Industry Regulatory Authority (FINRA) and the Municipal Securities Rulemaking
- Board (MSRB), among others.
- For those who seek to raise capital to fund an enterprise, as many in the ICO space have
- sought to do, a primary entry into the SEC’s jurisdiction is the offer and sale of securities, as set
- forth in the Securities Act of 1933.
- 3
- As I will explain in greater detail below, determining what
- 1 The views expressed in this testimony are those of the Chairman of the Securities and Exchange Commission and
- do not necessarily represent the views of the President, the full Commission, or any Commissioner.
- 2 See Jay Clayton and J. Christopher Giancarlo, Regulators are Looking at Cryptocurrency, Wall St. J. (Jan. 24,
- 2018), available at https://www.wsj.com/articles/regulators-are-looking-at-cryptocurrency1516836363?mod=searchresults&page=1&pos=2.
- 3 Under Section 2(a)(1) of the Securities Act and Section 3(a)(10) of the Exchange Act, a security includes, among
- other items, “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
- 2
- falls within the ambit of a securities offer and sale is a facts-and-circumstances analysis, utilizing
- a principles-based framework that has served American companies and American investors well
- through periods of innovation and change for over 80 years.
- The cryptocurrency and ICO markets, while new, have grown rapidly, gained greater
- prominence in the public conscience and attracted significant capital from retail investors. We
- have seen historical instances where such a rush into certain investments has benefitted our
- economy and those investors who backed the right ventures. But when our laws are not
- followed, the risks to all investors are high and numerous – including risks caused by or related
- to poor, incorrect or non-existent disclosure, volatility, manipulation, fraud and theft.
- To be clear, I am very optimistic that developments in financial technology will help
- facilitate capital formation, providing promising investment opportunities for institutional and
- Main Street investors alike. From a financial regulatory perspective, these developments may
- enable us to better monitor transactions, holdings and obligations (including credit exposures)
- and other activities and characteristics of our markets, thereby facilitating our regulatory mission,
- including, importantly, investor protection.
- At the same time, regardless of the promise of this technology, those who invest their
- hard-earned money in opportunities that fall within the scope of the federal securities laws
- deserve the full protections afforded under those laws. This ever-present need comes into focus
- when enthusiasm for obtaining a profitable piece of a new technology “before it’s too late” is
- strong and broad. Fraudsters and other bad actors prey on this enthusiasm.
- The SEC and the CFTC, as federal market regulators, are charged with establishing a
- regulatory environment for investors and market participants that fosters innovation, market
- integrity and ultimately confidence. To that end, a number of steps the SEC has taken relating to
- cryptocurrencies, ICOs and related assets are discussed below.
- Message for Main Street Investors
- Before discussing regulation in more detail, I would like to reiterate my message to Main
- Street investors from a statement I issued in December.4
- Cryptocurrencies, ICOs and related
- products and technologies have captured the popular imagination – and billions of hard-earned
- dollars – of American investors from all walks of life. In dealing with these issues, my key
- consideration – as it is for all issues that come before the Commission – is to serve the long term
- interests of our Main Street investors. My efforts – and the tireless efforts of the SEC staff –
- have been driven by various factors, but most significantly by the concern that too many Main
- Street investors do not understand all the material facts and risks involved. Unfortunately, it is
- 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). 4 In December, I issued a statement that provided my general views on the cryptocurrency and ICO markets. The
- statement was directed principally at two groups: 1) Main Street investors and 2) market professionals – including,
- for example, broker-dealers, investment advisers, exchanges, lawyers and accountants – whose actions impact Main
- Street investors. See Statement on Cryptocurrencies and Initial Coin Offerings (Dec. 11, 2017), available at
- https://www.sec.gov/news/public-statement/statement-clayton-2017-12-11.
- 3
- clear that some have taken advantage of this lack of understanding and have sought to prey on
- investors’ excitement about the quick rise in cryptocurrency and ICO prices.5
- There should be no misunderstanding about the law. When investors are offered and sold
- securities – which to date ICOs have largely been –they are entitled to the benefits of state and
- federal securities laws and sellers and other market participants must follow these laws.
- Yes, we do ask our investors to use common sense, and we recognize that many
- investment decisions will prove to be incorrect in hindsight. However, we do not ask investors
- to use their common sense in a vacuum, but rather, with the benefit of information and other
- requirements where judgments can reasonably be made.
- This is a core principle of our federal securities laws and is embodied in the SEC’s
- registration requirements. Investors should understand that to date no ICOs have been registered
- with the SEC, and the SEC also has not approved for listing and trading any exchange-traded
- products (such as ETFs) holding cryptocurrencies or other assets related to cryptocurrencies. If
- any person today says otherwise, investors should be especially wary.
- Investors who are considering investing in these products should also recognize that these
- markets span national borders and that significant trading may occur on systems and platforms
- outside the U.S. Investors’ funds may quickly travel overseas without their knowledge. As a
- result, risks can be amplified, including the risk that U.S. market regulators, such as the SEC and
- state securities regulators, may not be able to effectively pursue bad actors or recover funds.
- Further, there are significant security risks that can arise by transacting in these markets,
- including the loss of investment and personal information due to hacks of online trading
- platforms and individual digital asset “wallets.” A recent study estimated that more than 10% of
- proceeds generated by ICOs – or almost $400 million – has been lost to such attacks.6
- And less
- than two weeks ago, a Japanese cryptocurrency market lost over $500 million in an apparent
- hack of its systems.7
- In order to arm investors with additional information, the SEC staff has issued investor
- alerts, bulletins and statements on ICOs and cryptocurrency-related investments, including with
- 5 In one instance, the SEC brought an enforcement action against a purported bitcoin mining company that claimed
- to have a product “so easy to use that it is ‘Grandma approved.’” In this case, in less than six months, the company
- allegedly raised more than $19 million from more than 10,000 investors. The SEC charged that company with
- operating a Ponzi scheme. See Press Release 2015-271, SEC Charges Bitcoin Mining Companies (Dec. 1, 2015),
- available at https://www.sec.gov/news/pressrelease/2015-271.html; SEC Obtains Final Judgment Against Founder
- of Bitcoin Mining Companies Used to Defraud Investors (Oct. 4, 2017), available at
- https://www.sec.gov/litigation/litreleases/2017/lr23960.htm. 6 See EY Research: Initial Coin Offerings (ICOs) (Dec. 2017), available at
- http://www.ey.com/Publication/vwLUAssets/ey-research-initial-coin-offerings-icos/%24File/ey-research-initialcoin-offerings-icos.pdf.
- 7 See Reuters, Japan Raps Coincheck, Orders Broader Checks after $530 Million Cryptocurrency Theft, Jan. 28,
- 2018, available at https://www.reuters.com/article/us-japan-cryptocurrency/japan-raps-coincheck-orders-broaderchecks-after-530-million-cryptocurrency-theft-idUSKBN1FI06S.
- 4
- respect to the marketing of certain offerings and investments by celebrities and others.8 If
- investors choose to invest in these products, they should ask questions and demand clear
- answers. I would strongly urge investors – especially retail investors – to review the sample
- questions and investor alerts issued by the SEC’s Office of Investor Education and Advocacy.
- 9
- These warnings are not an effort to undermine the fostering of innovation through our
- capital markets – America was built on the ingenuity, vision and spirit of entrepreneurs who
- tackled old and new problems in new, innovative ways. Rather, they are meant to educate Main
- Street investors that many promoters of ICOs and cryptocurrencies are not complying with our
- securities laws and, as a result, the risks are significant.
- With my remaining testimony, I would like to provide the Committee an overview of the
- Commission’s ongoing work on cryptocurrencies and ICOs.
- Cryptocurrencies and Related Products and Trading
- 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. Many are promoted as providing the same functions as long-established currencies
- such as the U.S. dollar but without the backing of a government or other body. While
- cryptocurrencies currently being marketed vary in different respects, proponents of
- cryptocurrencies often tout their novelty and other potential beneficial features, including the
- ability to make transfers without an intermediary and without geographic limitation and lower
- transaction costs compared to other forms of payment. Critics of cryptocurrencies note that the
- purported benefits highlighted by proponents are unproven and other touted benefits, such as the
- personal anonymity of the purchasers and sellers and the absence of government regulation or
- oversight, could also facilitate illicit trading and financial transactions, as well as fraud.
- The recent proliferation and subsequent popularity of cryptocurrency markets creates a
- question for market regulators as to whether our historic approach to the regulation of sovereign
- currency transactions is appropriate for these new markets. These markets may look like our
- regulated securities markets, with quoted prices and other information. Many trading platforms
- are even referred to as “exchanges.” I am concerned that this appearance is deceiving. In reality,
- investors transacting on these trading platforms do not receive many of the market protections
- that they would when transacting through broker-dealers on registered exchanges or alternative
- 8 Statement on Potentially Unlawful Promotion of Initial Coin Offerings and Other Investments by Celebrities and
- Others (Nov. 1, 2017), available at https://www.sec.gov/news/public-statement/statement-potentially-unlawfulpromotion-icos;
- Investor Alert: Public Companies Making ICO-Related Claims (Aug. 28, 2017), available at
- https://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 at
- https://www.investor.gov/additional-resources/news-alerts/alerts-bulletins/investor-alert-bitcoin-other-virtualcurrency;
- Investor Alert: Ponzi Schemes Using Virtual Currencies (July 23, 2013), available at
- https://www.sec.gov/investor/alerts/ia_virtualcurrencies.pdf. 9 See Sample Questions for Investors Considering a Cryptocurrency or ICO Investment Opportunity (Dec. 2017),
- available at https://www.sec.gov/news/public-statement/statement-clayton-2017-12-11#_ftnref8.
- 5
- trading systems (ATSs), such as best execution, prohibitions on front running, short sale
- restrictions, and custody and capital requirements. I am concerned that Main Street investors do
- not appreciate these differences and the resulting substantially heightened risk profile.
- It appears that many of the U.S.-based cryptocurrency trading platforms have elected to
- be regulated as money-transmission services. Traditionally, from an oversight perspective, these
- predominantly state-regulated payment services have not been subject to direct oversight by the
- SEC or the CFTC. Traditionally, from a function perspective, these money transfer services
- have not quoted prices or offered other services akin to securities, commodities and currency
- exchanges. In short, the currently applicable regulatory framework for cryptocurrency trading
- was not designed with trading of the type we are witnessing in mind. As Chairman Giancarlo
- and I stated recently, we are open to exploring with Congress, as well as with our federal and
- state colleagues, whether increased federal regulation of cryptocurrency trading platforms is
- necessary or appropriate. We also are supportive of regulatory and policy efforts to bring clarity
- and fairness to this space.
- The SEC regulates securities transactions and certain individuals and firms who
- participate in our securities markets. The SEC does not have direct oversight of transactions in
- currencies or commodities, including currency trading platforms.
- While there are cryptocurrencies that, at least as currently designed, promoted and used,
- do not appear to be securities, simply calling something a “currency” or a currency-based
- product does not mean that it is not a security. To this point I would note that many products
- labeled as cryptocurrencies or related assets are increasingly being promoted as investment
- opportunities that rely on the efforts of others, with their utility as an efficient medium for
- commercial exchange being a distinct secondary characteristic. As discussed in more detail
- below, if a cryptocurrency, or a product with its value tied to one or more cryptocurrencies, is a
- security, its promoters cannot make offers or sales unless they comply with the registration and
- other requirements under our federal securities laws.
- 10
- In this regard, the SEC is monitoring the cryptocurrency-related activities of the market
- participants it regulates, including brokers, dealers, investment advisers and trading platforms.
- Brokers, dealers and other market participants that allow for payments in cryptocurrencies, allow
- customers to purchase cryptocurrencies (including on 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-yourcustomer
- obligations.11 As I have stated previously, these market participants should treat
- payments and other transactions made in cryptocurrency as if cash were being handed from one
- party to the other.
- 10 It is possible to conduct an offer and sales of securities, including an ICO, without triggering the SEC’s
- registration requirements. For example, just as with a Regulation D exempt offering to raise capital for the
- manufacturing of a physical product, an ICO that is a security can be structured so that it qualifies for an applicable
- exemption from the registration requirements.
- 11 I am particularly concerned about market participants who extend to customers credit in U.S. dollars – a relatively
- stable asset – to enable the purchase of cryptocurrencies, which, in recent experience, have proven to be a more
- volatile asset.
- 6
- Finally, financial products that are linked to underlying digital assets, including
- cryptocurrencies, may be structured as securities products subject to the federal securities laws
- even if the underlying cryptocurrencies are not themselves securities. Market participants have
- requested Commission approval for new products and services of this type that are focused on
- retail investors, including cryptocurrency-linked ETFs. While we appreciate the importance of
- continuing innovation in our retail fund space, there are a number of issues that need to be
- examined and resolved before we permit ETFs and other retail investor-oriented funds to invest
- in cryptocurrencies in a manner consistent with their obligations under the federal securities
- laws. These include issues around liquidity, valuation and custody of the funds’ holdings, as
- well as creation, redemption and arbitrage in the ETF space.
- Last month, after working with several sponsors who ultimately decided to withdraw
- their registration statements, the Director of our Division of Investment Management issued a
- letter to provide an overview of certain substantive issues and related questions associated with
- registration requirements and to encourage others who may be considering a fund registered
- pursuant to the Investment Company Act of 1940 to engage in a robust discussion with the staff
- concerning the above-mentioned issues.12 Until such time as those questions have been
- sufficiently addressed, I am concerned about whether it is appropriate for fund sponsors that
- invest substantially in cryptocurrencies and related products to register. We will continue
- engaging in a dialogue with all interested parties to seek a path forward consistent with the
- SEC’s tripartite mission.
- ICOs and Related Trading
- Coinciding with the substantial growth in cryptocurrencies, companies and individuals
- increasingly have been using so-called ICOs to raise capital for businesses and projects.
- Typically, these offerings involve the opportunity for individual investors to exchange currency,
- such as U.S. dollars or cryptocurrencies, in return for a digital asset labeled as a coin or token.
- The size of the ICO market has grown exponentially in the last year, and it is estimated that
- almost $4 billion was raised through ICOs in 2017. Note that this number may understate the
- size of the ICO market (and the potential for loss) as many ICOs “trade up” after they are issued.
- These offerings can take different forms, and the rights and interests a coin is purported
- to provide the holder can vary widely. A key question all ICO market participants – promoters,
- sellers, lawyers, officers and directors and accountants, as well as investors – should ask: “Is the
- coin or token a security?” As securities law practitioners know well, the answer depends on the
- facts. But by and large, the structures of ICOs that I have seen involve the offer and sale of
- securities and directly implicate the securities registration requirements and other investor
- protection provisions of our federal securities laws. As noted above, the foundation of our
- federal securities laws is to provide investors with the procedural protections and information
- they need to make informed judgments about what they are investing in and the relevant risks
- 12 See Staff Letter: Engaging on Fund Innovation and Cryptocurrency-related Holdings (Jan. 18, 2018), available at
- https://www.sec.gov/divisions/investment/noaction/2018/cryptocurrency-011818.htm.
- 7
- involved. In addition, our federal securities laws provide a wide array of remedies, including
- criminal and civil actions brought by the DOJ and the SEC, as well as private rights of action.
- The Commission previously urged market professionals, including securities lawyers,
- accountants and consultants, to read closely an investigative report it released. On July 25, 2017,
- the Commission issued a Report of Investigation pursuant to Section 21(a) of the Securities
- Exchange Act of 193413 regarding an ICO of DAO Tokens.14 In the Report, the Commission
- considered the particular facts and circumstances presented by the offer and sale of DAO Tokens
- and concluded that DAO Tokens were securities based on longstanding legal principles, and
- therefore that offers and sales of the DAO Tokens were subject to the federal securities laws.
- The Report also explained that issuers of distributed ledger or blockchain technology-based
- securities must register offers and sales of such securities unless a valid exemption from
- registration applies, and that platforms that provide for trading in such securities must register
- with the SEC as national securities exchanges or operate pursuant to an exemption from such
- registration.
- The Commission’s message to issuers and market professionals in this space was clear:
- those who would use distributed ledger technology to raise capital or engage in securities
- transactions must take appropriate steps to ensure compliance with the federal securities laws.
- The Report and subsequent statements also explain that the use of such technology does not
- mean that an offering is necessarily problematic under those laws. The registration process
- itself, or exemptions from registration, are available for offerings employing these novel
- methods.
- The statement I issued in December that was directed to Main Street investors and market
- professionals provided additional insight into how practitioners should view ICOs in the context
- of our federal securities laws. Certain market professionals have attempted to highlight the
- utility or voucher-like characteristics of their proposed ICOs in an effort to claim that their
- proposed tokens or coins are not securities. Many of these assertions that the federal securities
- laws do not apply to a particular ICO appear to elevate form over substance. The rise of these
- form-based arguments is a disturbing trend that deprives investors of mandatory protections that
- clearly are required as a result of the structure of the transaction. Merely calling a token a
- “utility” token or structuring it to provide some utility does not prevent the token from being a
- security.15 Tokens and offerings that incorporate features and marketing efforts that emphasize
- 13 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.” The Report does not constitute
- an adjudication of any fact or issue addressed therein, nor does it make any findings of violations by any individual
- or entity.
- 14 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. 15 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.”).
- 8
- the potential for profits based on the entrepreneurial or managerial efforts of others continue to
- contain the hallmarks of a security under U.S. law. It is especially troubling when the promoters
- of these offerings emphasize the secondary market trading potential of these tokens, i.e., the
- ability to sell them on an exchange at a profit. In short, prospective purchasers are being sold on
- the potential for tokens to increase in value – with the ability to lock in those increases by
- reselling the tokens on a secondary market – or to otherwise profit from the tokens based on the
- efforts of others. These are key hallmarks of a security and a securities offering.
- On this and other points where the application of expertise and judgment is expected, I
- believe that gatekeepers and others, including securities lawyers, accountants and consultants,
- need to focus on their responsibilities. I have urged these professionals to be guided by the
- principal motivation for our registration, offering process and disclosure requirements: investor
- protection and, in particular, the protection of our Main Street investors.16
- I also have cautioned market participants against promoting or touting the offer and sale
- of coins without first determining whether the securities laws apply to those actions. Engaging
- in the business of selling securities generally requires a license, and experience 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, my colleagues and I have cautioned
- those who operate systems and platforms that effect or facilitate transactions in these products
- that they may be operating unregistered exchanges or broker-dealers that are in violation of the
- Securities Exchange Act of 1934.
- I do want to recognize that recently social media platforms have restricted the ability of
- users to promote ICOs and cryptocurrencies on their platforms. I appreciate the responsible step.
- Enforcement
- A number of concerns have been raised regarding the cryptocurrency and ICO markets,
- including that, as they are currently operating, there is substantially less investor protection than
- in our traditional securities markets, with correspondingly greater opportunities for fraud and
- manipulation. The ability of bad actors to commit age-old frauds with new technologies coupled
- with the significant amount of capital – particularly from retail investors – that has poured into
- cryptocurrencies and ICOs in recent months and the offshore footprint of many of these activities
- have only heightened these concerns.
- In September 2017, the Division of Enforcement established a new Cyber Unit focused
- on misconduct involving distributed ledger technology and ICOs, the spread of false information
- through electronic and social media, brokerage account takeovers, hacking to obtain nonpublic
- information and threats to trading platforms.17 The Cyber Unit works closely with our crossdivisional
- Distributed Ledger Technology Working Group, which was created in November
- 16 See Opening Remarks at the Securities Regulation Institute (Jan. 22, 2018), available at
- https://www.sec.gov/news/speech/speech-clayton-012218. 17 See Press Release 2017-176, SEC Announces Enforcement Initiatives to Combat Cyber-Based Threats and Protect
- Retail Investors (Sept. 25, 2017), available at https://www.sec.gov/news/press-release/2017-176.
- 9
- 2013. We believe this approach has enabled us to leverage our enforcement resources
- effectively and coordinate well within the Commission, as well as with other federal and state
- regulators.
- To date, we have brought a number of enforcement actions concerning ICOs for alleged
- violations of the federal securities laws. In September 2017, we brought charges against an
- individual for defrauding investors in a pair of ICOs purportedly backed by investments in real
- estate and diamonds.18 According to the SEC’s complaint, investors provided approximately
- $300,000 in funding and were told they could expect sizeable returns despite neither company
- having real operations. In December 2017, we obtained an emergency asset freeze to halt an
- alleged ICO fraud that purportedly raised up to $15 million from thousands of individual
- investors beginning in August 2017.
- 19 According to the complaint, the scam was operated by a
- recidivist securities law violator and promised investors a more than 1,300 percent profit in
- under 29 days. As another example, after being contacted by the SEC last December, a company
- halted its ICO to raise capital for a blockchain-based food review service, and then settled
- proceedings in which we determined that the ICO was an unregistered offering and sale of
- securities in violation of the federal securities laws.20 Before tokens were delivered to investors,
- the company refunded investor proceeds after the SEC intervened.
- And most recently, we halted an allegedly fraudulent ICO that targeted retail investors
- promoting what it portrayed as the world’s first decentralized bank.21 We were able to freeze
- some of the allegedly ill-gotten cryptocurrency assets and obtained a receiver to try to marshal
- these assets back to harmed investors.
- I also have been increasingly concerned with recent instances of public companies, with
- no meaningful track record in pursuing distributed ledger or blockchain technology, changing
- their business models and names to reflect a focus on distributed ledger technology without
- adequate disclosure to investors about their business model changes and the risks involved. A
- number of these instances raise serious investor protection concerns about the adequacy of
- disclosure especially where an offer and sale of securities is involved. The SEC is looking
- closely at the disclosures of public companies that shift their business models to capitalize on the
- perceived promise of distributed ledger technology and whether the disclosures comply with the
- federal securities laws, particularly in the context of a securities offering.
- With the support of my fellow Commissioners, I have asked the SEC’s Division of
- Enforcement to continue to police these markets vigorously and recommend enforcement actions
- against those who conduct ICOs or engage in other actions relating to cryptocurrencies in
- violation of the federal securities laws. In doing so, the SEC and CFTC are collaborating on our
- 18 Press Release 2017-185, SEC Exposes Two Initial Coin Offerings Purportedly Backed by Real Estate and
- Diamonds (Sept. 29, 2017), available at https://www.sec.gov/news/press-release/2017-185-0. 19 Press Release 2017-219, SEC Emergency Action Halts ICO Scam (Dec. 4, 2017), available at
- https://www.sec.gov/news/press-release/2017-219. 20 Press Release 2017-227, Company Halts ICO After SEC Raises Registration Concerns (Dec. 11, 2017), available
- at https://www.sec.gov/news/press-release/2017-227. 21 Press Release 2018-8, SEC Halts Alleged Initial Coin Offering Scam (Jan. 30, 2018), available at
- https://www.sec.gov/news/press-release/2018-8.
- 10
Advertisement
Add Comment
Please, Sign In to add comment
Advertisement