SEC Targets ICOs in Broad Cryptocurrency Markets Investigation
While all may seem quiet on the regulatory front, it could just be the calm before the storm. The US Securities and Exchange Commission is pursuing a broad investigation into ICOs, one where numerous subpoenas and requests for information have been issued to several blockchain startups, according to The Wall Street Journal.
The securities regulator has been ratcheting up its discussion on ICOs it says may be in violation of securities laws, and they are taking action. The BTC price was off about 3 percent soon in the minutes after the WSJ report came out.
ICOs are a multi-billion dollar market, with tallies for last year ranging from $5.6 billion to as high as $6.5 billion. 2018 has been off to a bang also, with deals such as Telegram targeting tens of thousands of dollars. SEC Chairman Jay Clayton said earlier this month: «I feel every token I've seen is a safety,» which should have sent chills up the spine of the founders of blockchain startups that chose to label their tokens a utility and not a security.
A utility token should have a particular application tied to the ecosystem for that market. By way of example, a gaming project whose tokens can be used to buy virtual goods. But few «utility» tokens are actually limited to the software they were meant for. When investors start to speculate on the value of the token itself, that's where the grey area surfaces, which worries authorities.
From the subpoenas, the SEC is reportedly requesting information from issuers such as the «structure» of both token sales and ICO pre-sales, according to the Journal. While both ICOs and initial public offerings (IPOs) are fundraising approaches, the former is much more loosely controlled. ICO issuers disclose a white paper, comprised of information for the way that job sees the world, and having to register with regulators would slow down the fundraising process.
Meanwhile, cybersecurity consultant John Reed Stark, a former SEC official, presciently told Bloombergearlier this month that along with the ICO issuing firms, lawyers advising those startups that are found to be in violation of securities laws were likewise at risk of being part of a regulatory «sweep,» one that he predicted would focus on the «low hanging fruit» to begin.
Regulators previously «recommended enforcement actions against the ones that conduct initial coin offerings in violation of the federal securities laws,» according to the SEC. The SEC last year made it the job of a new crypto-focused task force to analyze new digital tokens that come to market, and they have stopped or spooked over a couple of these so far that they've made public.