SEC Starts Cryptocurrency Probe – Subpoenas Are Issued

Investing, News, Regulation | February 28, 2018 By:

The US Securities and Exchange Commission has begun issuing what’s described as “scores” of subpoenas to cryptocurrency companies and their advisors.

The Wall Street Journal reports that the subpoenas and information requests, described as “sweeping,” have gone out to various US companies. The action comes after the SEC continually warned companies that many tokens created by initial coin offerings (ICO) were, in fact, unregistered securities and may violate securities law.

The SEC requests asks for information on the ICO structures, including pre-sales. ICOs are not yet governed by the same rules as initial public offerings of stock, and many enterprises have created tokens that they hope would be grandfathered into compliance with any changes in the law.

Last year, ICOs raised more than $4 billion worldwide for startup companies and remain one of the most popular fundraising tools.

The SEC has declined to comment so far on its latest actions.

Earlier in February, US Securities and Exchange Commission chairman Jay Clayton called for regulators to “come together” to concoct a plan on dealing with the digital currency markets.

Clayton testified alongside Commodity Futures Trading Commission (CFTC) Chairman J. Christopher Giancarlo before the Senate Banking Committee.

“We should all come together, the federal banking regulators, the [Commodity Futures Trading Commission] and [Securities and Exchange Commission] — there are states involved as well — and have a coordinated plan for dealing with the virtual currency trading market,” said Clayton.

Cryptocurrencies are regulated by the CFTC as commodities. However, the digital markets have little regulatory oversight.

Clayton said his  agency planned to take a closer look at initial coin offerings (ICOs), noting that most appeared to be securities. “From what I’ve seen, initial coin offerings are securities offerings. They are interest in companies, much like stocks and bonds, under a new label,” he said.

He added: “Many ICOs are being conducted illegally. They are not following securities laws. Some say that this is because the law is not clear. I don’t buy that for a moment.”

The SEC has cracked down on some ICOs over the last six months, but the approach has been scattershot and affected relatively few. However, many nascent companies have complained about the regulatory path being unclear, which crypto and blockchain companies claim stifles innovation for fear of legal jeopardy.

Clayton also addressed exchange-traded funds (ETFs) in cryptocurrency.

“We’ve made it clear to the marketplace that there are a couple of issues with having an ETF that’s based on a cryptocurrency,” Clayton said. “They go to price discovery, custody and some other issues around volatility. We don’t want to approve an ETF with a cryptocurrency underlying it until we can get comfortable with those issues,” he said.

Lawmakers mostly harumphed and asked for more consumer protections, but offered little clarity on what that might mean.