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SEC Probes ICO Fundraising Methods

James Levenson | Mar 01, 2018 | 02:30

SEC probes ICO fundraising News

SEC Probes ICO Fundraising Methods

James Levenson | Mar 01, 2018 | 02:30


In an effort to bring the largely unregulated and highly speculative world of initial coin offerings in the US under control, the Securities and Exchange Commission (SEC) has started to issue subpoenas. Those initially targeted in the investigation were technology companies and advisers involved in the cryptocurrency industry.


Just a few hours ago, the WSJ reported that the SEC’s probe was intensifying the underlying need for US regulators to rein in the industry. The primary concern is not crypto trading, as such, but the unregulated world of ICOs and their methods of raising funds for their projects and concepts.

SEC

ICO Fundraising Eyed

Citing “people familiar with the matter,” the report went on to state that orders called for more information regarding the structure for sales and pre-sales of ICOs. These are not currently subjected to the same rigorous regulations as traditional IPOs for companies.

Blockchain and crypto companies had been previously warned for what officials have claimed are “widespread violations of securities rules designed to protect investors.” According to SEC chairman Jay Clayton:

Many promoters of ICOs and cryptocurrencies are not complying with our securities laws.

Clayton also told staff last month to be “on high alert for approaches to ICOs that may be contrary to the spirit of those laws.”

According to Token Report, the ICO market is on fire with over $1.6 billion already raised this year alone. Former SEC commissioner Dan Gallagher said this was the tip of the iceberg and that there would be a ton of enforcement activity. He referred to unregulated token offerings as “the freaking Wild West—it is ‘Wolf of Wall Street’ on steroids.

ICOs

Protection from Fraud

Contrary to what may be reported elsewhere, the SEC is not clamping down on cryptocurrencies. Its primary concern is the prevention of fraud and scams from unregulated ICOs, many of which have no physical product or platform to offer and are merely selling a concept. Citing a soon-to-be published MIT study on the ICO industry, the WSJ reported that between $270 and $317 million of the funds raised by ICOs are likely to have been scams.

Only a few of these cases have actually been successfully solved as regulators struggled to keep pace with the burgeoning industry over the past year. This latest wave of crypto-related subpoenas is focused partially on ‘simple agreements for future tokens’ (SAFTs) that are the method of choice for most ICO fundraising.

A little more regulation such as this will weed out the bad actors and make ICO and crypto investing a safer place for all of us in the long run, adding more legitimacy to the nascent industry.

Is ICO regulation a good thing for the crypto industry? Add your thoughts in the comments below. 


Images courtesy of Flickr/@jnn1776, Shutterstock, and Bitcoinist archives.


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