Blockchain Name Change Scrutinized By SEC

News, Regulation | January 23, 2018 By:

US Securities and Exchange Commission (SEC) head Jay Clayton has warned companies against changing their names in a bid to capitalize upon the hype surrounding blockchain technology.

A number of companies in recent months have launched blockchain initiatives to take advantage of the cryptocurrency mania. Some companies have rebranded themselves completely, adding blockchain directly to their name. In some cases, the companies’ share prices soared in the US, Germany, and Hong Kong after announcing they are moving to develop products or services around the tech.

In a speech he gave on Monday at the Securities Regulation Institute, Clayton said the SEC will be watching firms taking on new names and business models to make sure they’re not just trying lure investors eager to jump on the blockchain bandwagon.

“The SEC is looking closely at the disclosures of public companies that shift their business models to capitalize on the perceived promise of distributed ledger technology and whether the disclosures comply with the securities laws, particularly in the case of an offering,” said Clayton.

Clayton added that he doesn’t think it would be acceptable for a public company with no meaningful track record in pursuing the commercialization of the technology to start to dabble in blockchain activities. He said companies need to provide adequate disclosure to Main Street investors about those changes and the risks involved.

Clayton also warned that lawyers could come under scrutiny if they’re not sufficiently diligent in advising would-be initial coin offering (ICO) organizers.

“First, and most disturbing to me, there are ICOs where the lawyers involved appear to be, on the one hand, assisting promoters in structuring offerings of products that have many of the key features of a securities offering, but call it an “ICO,” which sounds pretty close to an IPO,” said Clayton. “These lawyers appear to provide the ‘it depends’ equivocal advice. I have instructed the SEC staff to be on high-alert for approaches to ICOs that may be contrary to our securities laws and to the professional obligations of the US securities bar.”