The Securities and Exchange Commission (SEC) sent subpoenas last week to as many as 80 companies and people involved in the rise of initial coin offerings, or ICOs. The move is viewed as the most-concrete evidence yet of the government’s desire to better regulate cryptocurrency as it moves into the mainstream. Does their action signal an impending crackdown?
Why the Government Concern over ICOs?
ICOs have recently rocketed to prominence as mainstream acceptance of cryptocurrency and crowdfunding—coupled with tangible examples of their benefits—has grown. Coindesk, the trusted crypto news and information service, estimated that businesses raised over $5 billion via ICO in 2017. Companies gravitate towards ICOs because they provide a way to raise capital while maintaining control over operations and decision-making – no VC money means no pressure to follow outside direction.
Federal officials, however, are concerned that virtual currencies enable companies to skirt scrutiny by bypassing banks and regulatory bodies. They have recently championed stronger regulations on cryptocurrency, with efforts ramping up since 2017. Among the concerns are that in the current lax regulatory climate, ICOs may be used to raise money for non-existent companies; investors, unaware or otherwise, may not be doing their homework. SEC Chairman Jay Clayton has reaffirmed his desire for cryptocurrencies to be registered and regulated as securities on multiple occasions, signaling a potential path forward.
What does it mean for the future?
Sources for the Wall Street Journal, who broke the story, indicate the SEC is seeking information from companies who launched ICOs, as well as the people and firms who helped facilitate them. Their search includes subpoenas from SEC offices nationwide, a signal that the investigation appears to be part of a broader regulatory push. The same sources disclosed that the subpoenas have requested marketing information, identities of investors, and more—another sign the commission is casting a wide net.
The SEC has already litigated several companies offering ICOs for fraudulent practices, some as recent as January; while the scope of the recent subpoenas has caused a stir, it does not signal a death knell for the practice. Rather, it appears to be the latest, most serious step in Clayton’s mission to protect investors. In a recent speech, Clayton spelled out his goals to the Securities Regulation Institute: “Market professionals, especially gatekeepers, need to act responsibly and hold themselves to high standards…to be blunt, from what I have seen recently, particularly in the initial coin offering space, they can do better.” Soon, that will be their only option.
To learn more about initial coin offerings—what they are and how they work—explore articles in Tickeron’s Academy, on tickeron.com.