SEC Chairman Fires Another Warning Shot at ICOs as Agency Issues 'Dozens' of Subpoenas
The top regulator at the US Securities and Exchange Commission (SEC) has fired yet another warning shot first coin offerings (ICOs) that are being used to mask unregistered securities offerings.
In an interview with Fox Business, SEC Chairman Jay Clayton reiterated that a substantial portion of the ICOs that he has observed qualify as securities offerings, even though they are marketed as utility token earnings and claim that they are exempt from securities regulations.
«Many ICO's and many of the ones I've looked at especially are securities. They're offerings of interest in a venture where the purchaser of the ICO of this token, it is possible to call it a token you can call it a safety, is basically saying I am investing with you with the guarantee of a future return, whether you send something to me later as a result of your efforts because I sell it to somebody else who wants that return later on. That's a security, and the SEC's job is to regulate the offer and sale of securities.»
These are among the SEC chairman's first public statements on this nascent fundraising model since reports emerged that the bureau had issued subpoenas to as many as 80 ICO operators, demanding they turn over records related to their nominal sales.
The SEC is also investigating other offerings — such as that of tZero, a subsidiary of e-commerce firm Overstock — although these firms have reportedly been asked to hand over documents voluntarily.
In a lengthy exchange, Clayton detailed one of the SEC's chief problems with the condition of the ICO markets, specifically that issuers seem determined to «break down [the] traditional approach to public and private markets.» Many ICOs have attempted to do both.
«For some reason, people selling ICOs seem to think they don't need to follow either path they seem to believe they can have the best of both worlds. A limited disclosure from a private placement and public trading and public offering of the token. For quite a long time, since 1933 that's not been allowed,» Clayton said. «Although I love this new technology the new technology is not a reason to break down our traditional approach to private and public markets.»
Meanwhile, a newly-released letter drafted by an official with the Department of the Treasury suggests that ICOs may also need to register as money transfer businesses, which would subject them to the Bank Secrecy Act and other regulations that, if violated, incur criminal penalties.
Clayton advised investors to «think long and hard» before contributing to ICOs that don't explicitly demonstrate their compliance with SEC regulations, noting that there is little the agency can do to protect investors once the money moves overseas.
«Abide by the law,» he cautioned, «we're seeing others are watching.»