The Long Arm of the Law Comes to Cryptos, SEC Issuing Subpoenas

Tuesday evening the Wall Street Journal published an article that the Securities and Exchange Commission issued dozens of subpoenas and information requests from those involved with initial coin offerings (ICOs).

Let’s see what’s going on and the impact on crypto markets.

Those in the crypto market knew this was coming. SEC Chairman Jay Clayton issued a statement on cryptocurrencies and ICOs back in December.

Key points included:

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.

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.

What he’s saying is that ICOs need to follow SEC regulations and in the eyes of the SEC pretty much every crypto is a security.

Token sales have already raised $1.66 billion in 2018 and are on pace to break the $6.5 billion raised in 2017. With such rapid growth the SEC is feeling the pressure to get a handle on the ICO market.

In this enforcement round the SEC is looking for info on how token sales and pre-sales were conducted. They’re also looking into SAFTs, simple agreements for future tokens.

What’s interesting is that while there appears to be a crackdown on the federal level, states are moving in the other direction. Wyoming passed a bill that allows ICOs to bypass securities regulations if they meet key requirements. And Arizona is going to accept cryptocurrencies for taxes.

It would be nice if the SEC took a cue from Switzerland’s Financial Market Supervisory Authority. They defined three classes of tokens, with only one class being a security.

Overall the market shrugged off the news and even rallied over the past 24 hours. I found that surprising.

What do you think of the SEC’s recent crackdown?

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