Admittedly, the US Securities and Exchange Commission (SEC) has not clearly developed a concise regulatory framework for cryptocurrencies. However, in its just-released 2018 annual report released by the SEC’s Division of Enforcement, the topic gained significant prominence. Notably, there was great emphasis on ICOs.
In the report, the Division of Enforcement highlights its ability to clamp down on fraud in the financial system and safeguard the interests of Main Street investor.
ICO Take Dominance
Through the 2018 annual report, the term ICOs received close to 30 mentions with the document dedicated to spotlighting misconducts associated “digital assets and initial coin offerings,” as per the report.
Despite a lack of regulation, The SEC has had a lot of influence over the ICO market. Particularly, the decision by the SEC to reverse the trend of celebrity endorsements of token ICOs clearly elaborates their influence. The report highlights that the Division of Enforcement “urged caution around” and even “brought almost an immediate end to such promotions.”
In what the SEC referred to as an “explosion” of ICOs over the last year, they assert that they have pursued cases that deliver broad messages to the market. To that end, the report alleges, the SEC has used various tool to enlighten investors and market participants, including, accountants, lawyers and other gatekeepers.
According to the report, the SEC notes that in its enforcement pursuits, it is trying to create a balance between offering protection to Main Street investors from scams and fraud “without stifling innovation and legitimate capital formation. “The report, borrowing also suggests that “exuberance around these markets can sometimes obscure the fact that these offerings are often high-risk investments.”
As a key risk investment, the report highlights investing in a project with neither history of performance, nor viable product let alone revenue or satisfactory cybersecurity as an example. Furthermore, there is a tendency of issuers affirming to use blockchain technology but which are “simply outright frauds cloaked in the veneer of emerging technology,” the report says.
The report notes that the SEC has issued more than 12 “stand-alone enforcement actions involving digital assets and ICOs,” including transactions that raised tens of millions of dollars from investors. Outstandingly, Titanium Blockchain raised $21 million in an ICO after allegedly falsifying information on their relationship with PayPal, Fed, Verizon, Boeing, and The Walt Disney Company.
The SEC charged Titanium President Michael Alan Stollery and Titanium for violation of anti-fraud and registration violations. Additionally, another unnamed ICO allegedly “promised a 13-fold profit in less than a month.” Also, the SEC cracked down on TokenLot which marketed itself as an “ICO superstore” but operated as an unregistered broker-dealer.
The section on “ICOs and Digital Assets” appears before the “Public Company Disclosures of Cybersecurity Risks and Incidents” under the larger subhead of “Policing Cyber-Related Misconduct.” The Division of Enforcement reveals all the scams it unravelled over the past year by listing all of them at the end of the report.