SEC Probe Into Cryptocurrencies Welcomed, But Some Worry About Over-Regulation
The beginning phase of the US Securities and Exchange Commission’s closer look at cryptocurrencies and initial coin offerings was largely welcomed today by the digital currency and blockchain community. Most saw it as a chance to instill more confidence in the industry by weeding out bad actors and others who may be casting a shadow on legitimate efforts to build a long-lasting business.
But some cautioned that the spectre of over-regulation may make some companies wary of the US until the SEC intentions are clearer.
Block Tribune asked whether the SEC probe would have a chilling effect on the blockchain business; whether companies would be more or less likely to operate in the US if things intensified; and whether the end game of the probe would be fines, shut-downs or even prison sentences.
Here are some immediate reactions. We will add more throughout the day.
Vince Mundy, founder/CEO of BrightCOIN:
1) Will the SEC subpoenas and requests for information have any chilling effect on the blockchain business?
ANSWER: The subpoenas won’t have much of an effect within the ICO world. The ICOs that the SEC has gone after should be shut down. DeavorCoin and BitConnect are Ponzi schemes. Others have promised outlandish gains. These ICOs are growing pains and need to be weeded out. At BrightCOIN, we view this as positive. We welcome regulation and feel it is required for us as an industry to move into the mainstream.
2) Will you be more or less likely to have an office in the US if the SEC gets tough on ICOs?
ANSWER: We are an American company that is going to be running an ICO and we’re going to be domiciled in the state of Wyoming. Wyoming is setting the standard for blockchain. They’re aggressively courting the industry and the ICO industry is responding.
3) What do you think the end game is on this probe – will it mean substantial fines, businesses closing, possible jail time or other sanctions for advisors or corporate officers?
ANSWER: All of the above.”I think the lack of legislation has prevented USA companies from taking advantage of ICOs,” said Mundy. “At the moment, all of these companies who are floating ICOs seem to be in Russia. With proper regulation, the ICO industry would blossom in the US and we could be the center of the initial coin offering universe.”
Austin Trombley, CTO/President of Vaultbank:
1) Will the SEC subpoenas and requests for information have any chilling effect on the blockchain business?
ANSWER: This should adversely impact token sales which have misleadingly dubbed themselves utility tokens rather than security tokens – as the SEC’s Jay Clayton said a few weeks ago, they have yet to see an ICO that wasn’t a security offering. In addition, it may temper the booming token sales, which are not based in any solid business plan, but rather have been raising vast amounts of money for a “hopeful” or “anticipated” project. ICO’s cannot continue to over- promise returns to investors in order to drive their token sales without real product in development.
On the whole, this should be seen as a welcomed action by the SEC into the regulatory process of ICO’s and token offerings. By bringing regulations, and a known framework, investors will be safeguarded against fraudulent schemes and highlight the compliant offerings.
2) Will you be more or less likely to have an office in the US if the SEC gets tough on ICOs?
ANSWER: This should encourage more companies to be based in the United States, so long as it doesn’t hamper innovation. By being given a framework to comply with SEC regulations, the fraud can be reduced and a stronger, healthier, and more compliant US ecosystem can grow and flourish in the blockchain and affiliated crypto space. This will help mainstream and institutional investors get into the crypto space, building confidence in crypto skeptics.
3) What do you think the end game is on this probe – will it mean substantial fines, businesses closing, possible jail time or other sanctions for advisors or corporate officers?
ANSWER: The SEC’s main objective is to protect investors and consumers, and the good actors in crypto welcome the oversight. Some token offerings will now be closed to US investors who have intentionally attempted to circumvent US Securities Laws, while other completed offerings might now face fines. This should be welcomed news to anyone who is running a compliant offering and should highlight the companies playing by the rules.
“Vaultbank has operated within current Securities Laws, and will continue to retain securities experts in several countries in order to comply with all the laws, and looks forward to receiving more guidance from the SEC and CFTC in the near future,” said Trombley.
Darvin Kurniawan, CEO and Co-founder of Crowdvilla:
1) Will the SEC subpoenas and requests for information have any chilling effect on the blockchain business?
ANSWER: Startups will need to start putting weight into the legality of their token economy. Definitely it will give out chilling effect, but it will be the right message.
2) Will you be more or less likely to have an office in the US if the SEC gets tough on ICOs?
ANSWER: For us, as we believe crowdvilla.io is compliant (not securities). It is not going to affect our decision. But for the industry in general, as can be seen with the majority of ICO out there who excludes US citizens, they will not be opening an office in the US soon.
3) What do you think the end game is on this probe – will it mean substantial fines, businesses closing, possible jail time or other sanctions for advisors or corporate officers?
ANSWER: Probably immediate liquidation of many ICO projects, with probable jail time for those blatantly pulling of scam-type of ICO.
“The move, I believe, sends out the right message for ICOs that are trying to do the right responsible thing. I personally support those actions.”
Simon Dixon, CEO/co-founder, BnkToTheFuture.com:
1) Will the SEC subpoenas and requests for information have any chilling effect on the blockchain business?
ANSWER: It is to be expected. At BnkToTheFuture, we have always sold token investments as securities, and I believe the SEC will focus on those that have not.
2) Will you be more or less likely to have an office in the US if the SEC gets tough on ICOs?
ANSWER At BnkToTheFuture, we do all our securities offering through a US broker dealer with securities laws in mind, so we are still happy to allow US investors to participate. Many will choose to remove the US from their offerings, as they have been in the past. It creates an interesting scenario for ICO that don’t perform KYC on their purchasers though, as it’s the main way to determine the residency of purchasers.
3) What do you think the end game is on this probe – will it mean substantial fines, businesses closing, possible jail time or other sanctions for advisors or corporate officers?
ANSWER:They may want to make a big example of somebody to send a message to the rest of the market. I think they will determine this based upon those that have committed fraud over those that have been ignorant of securities laws or those that have received bad advise from professional advisors.
“The market for tokens will continue to grow very fast it just means treating them as securities as we always have at BnkToTheFuture.com”
Anonymous, Executive at blockchain technology company in Silicon Valley:
1) Will the SEC subpoenas and requests for information have any chilling effect on the blockchain business?
ANSWER: No, assuming Clayton’s language around pursuing those in violation of the ‘spirit’ of the law is still their approach. This should have minimal impact on real businesses. Scammers should be worried. People who launched something that looks more like a marketing campaign vs. a real business or technical project should be worried. Businesses operating in good faith should be ok.
2) Will you be more or less likely to have an office in the US if the SEC gets tough on ICOs?
ANSWER: We are a global team and we will still have an office in the US, but growth for the industry may well happen more in countries who embrace blockchain. But regulations won’t change the caliber of talent in the US.
3) What do you think the end game is on this probe – will it mean substantial fines, businesses closing, possible jail time or other sanctions for advisors or corporate officers?
ANSWER: I’d be surprised at jail time, but expect that multiple players who have raised large sums of money without delivering value will be made an example of. We will see fines, shutdowns, and lawyers who can’t practice law anymore.
“The collapse of Bitconnect was a good thing for the self regulation of crypto. It showed that something very big could be very sketchy, and everyone is more skeptical for it. Tron’s crash too. A lesson learned to do your diligence. But it hasn’t been enough yet. There are still ‘projects’ who are all hype and no product. That was SO 2017. Maybe actions to come will help accelerate self regulation.”
Gene Grant, CEO; David Powell, COO of VRBex.
1) Will the SEC subpoenas and requests for information have any chilling effect on the blockchain business?
ANSWER: We expect the incredible pace of innovation around blockchain to continue to accelerate as more people explore the potential of this technology. The actions of the SEC will not impede the technology growth, but will instead serve to help to ensure that investment capital is funneled to those firms that demonstrate both good ideas and good governance. The SEC has a three part mission: protect investors, maintain fair, orderly, and efficient markets, and facilitate capital formation. These objectives are good for everyone — including the blockchain community – as they help ensure the transparency and protections that everyone desires.
It seems that what is being questioned by the SEC is the legality of the process through which capital is being channeled to start-up businesses involving blockchain. The SEC is not questioning the underlying business ideas or the validity of individuals to form such businesses, nor the opportunity to invest in such businesses. At VRBex, we believe good business ideas will continue to attract investors and their capital. What needs to happen is the formation of regulatory compliant processes that allow capital to pair up with sound businesses and business proposals. This is what the SEC is questioning – the capital formation processes associated with past ICOs.
2) Will you be more or less likely to have an office in the US if the SEC gets tough on ICOs?
ANSWER: All but one of our founding team has 25+ years experience working within the highly regulated financial services industry, and our exception has 30 years experience with a national intelligence agency. We know regulation. We built our careers growing businesses within the boundaries defined by regulation, and we know how to make things happen.
The cryptocurrency and digital token space have matured into a new financial asset class. One consequence is that the investment community and market regulators increasingly expect the same level of stability, dependability, and “trust” as found in traditional asset classes.
The markets within the USA are definitely more regulated than that found in some other jurisdictions, and that is precisely why we are starting our business in the USA. We believe that our investors and customers value the trust and security that accompanies a well-managed regulatory compliant company.
Texas is where we will remain, and we expect our Cryptocurrency and Security Token Exchange to help lead the way in working with greater community to bring the benefits of regulation without compromising what makes this dynamic new area of global finance special.
VRBex is dedicated to establishing a US based and US compliant digital exchange. Recent news further validates the need for new compliant market players in this space, and strengthens our resolve to build VRBex in the USA.
3) What do you think the end game is on this probe – will it mean substantial fines, businesses closing, possible jail time or other sanctions for advisors or corporate officers?
ANSWER: We are concerned that public perceives this probe as some sort of new regulation. It is not. Businesses wishing to operate in the USA, and have investors from the USA, must confirm to the US laws and regulations.
The SEC is seeking to enforce the Securities Acts of 1933 and 1934 – laws that were on the books for over 80 years – so there should be no surprises for people involved in violations of the Acts. We believe that there are remedies available under the law, and quite likely there will be a mixture of consequences.
We suggest that violators should not only be worried about enforcement action from the SEC and other federal and state regulators, but they should as concerned about actions arising from the private sector! We are not lawyers, but our understanding of the law is that investors who purchased unregistered securities, which were not sold subject to an exemption, under existing law have the right of recession (right to have money refunded in full) plus the right to bring suit. Under the 1933 Act people who control companies that issue unregistered securities have personal liability. Simply the possibility of actions from the private sector should be keeping people up at night.
The more important consequence of this probe is what happens in the future, and not the past. We believe that the well managed companies with good ideas will have an easier time to attract investors. We believe that investors will see more projects with clearly defined value propositions. We see this as a new beginning, and the future is bright.
“Regulations in the United States pertaining to capital formation are in place for the benefit of all market participants. The laws and regulations are clear and well formed, and help make the USA the one of the best markets in which to operate within the technology space. Innovation and regulation can work hand in hand, but they must be partners and not competitors.”
Estefano Elhawary, Co-Founder, Co-CEO & CMO of Block Stocks:
1) Will the SEC subpoenas and requests for information have any chilling effect on the blockchain business?
ANSWER: As a serial entrepreneur and business owner, I strongly believe that not every business is the same here. Will it have a tough effect on businesses that provide little to no value, use shady marketing tactics or try to scam investors? Definitely. Will it have a huge effect on serious, honest Business Owners who want to create value for investors and clients? I don’t think so and i don’t think that this is the intent of the SEC, or any other authority.
2) Will you be more or less likely to have an office in the US if the SEC gets tough on ICOs?
ANSWER: I would say it won’t seriously affect the serious and honest businesses as much as it will hurt businesses who are not. The developments of the SEC will only have a negligible effect on our decision of opening offices in the US as a whole.
3) What do you think the end game is on this probe – will it mean substantial fines, businesses closing, possible jail time or other sanctions for advisors or corporate officers?
ANSWER: Those who deserve it will in fact face substantial fines – and rightly so. I personally think the stricter the SEC gets, the better it will be for honest and serious entrepreneurs.
“The SECs intent is not to punish valuable long term business models. All they want – as any authority in the world – is to protect investors from unethical ICOs. This is why i am looking forward to any regulatory development of any government, as it gives honest entrepreneurs solid frameworks to act on.”
Carlos Domingo, founder and chairman of Securitize, founder and managing partner at SPiCE VC:
1) Will the SEC subpoenas and requests for information have any chilling effect on the blockchain business?
ANSWER: We have, and we continue to see, a massive influx of companies that want to follow the right process for issuing tokens. Securitize is helping a plethora of companies get to market with Security Token ICO’s. The SEC is saying that there is a right way to do things, and from our point of view this is easy to follow and hence we support the overall move to Security Tokens.
2) Will you be more or less likely to have an office in the US if the SEC gets tough on ICOs?
ANSWER: We are a USA-based company and we are not going anywhere. Many of our customers are also USA companies and I don’t see them going anywhere either.
3) What do you think the end game is on this probe – will it mean substantial fines, businesses closing, possible jail time or other sanctions for advisors or corporate officers?
ANSWER: I wouldn’t want to speculate on what the government will do, but I hope it’s constructive and with some level of guidance, rather than something that’s overly heavy handed and punitive.
Clayton Moore, founder and CEO of NetCents:
1) Will the SEC subpoenas and requests for information have any chilling effect on the blockchain business?
ANSWER: No, this will not have an effect on any blockchain company well positioned to work within the currency rules and regulations. If your business model is transparent and you’re regulation compliant in the US, not only will you be fine, you’ll be well positioned for success within more regulated markets.
2) Will you be more or less likely to have an office in the US if the SEC gets tough on ICOs?
ANSWER: Absolutely not — this would never deter us from having an office in the US. For us, this was never a matter of “if” the SEC would suddenly decide to bring regulation, it was simply a matter of “when” they would. This is not only new territory, there’s a huge a learning curve for not only the SEC, but any investor in the space. It’s an opportunity to work together to ensure people are properly protected. It’s all positive.
3) What do you think the end game is on this probe – will it mean substantial fines, businesses closing, possible jail time or other sanctions for advisors or corporate officers?
ANSWER: Each situation needs to be reviewed independently. If you’re a bad actor who is ripping people off and wreaking financial havoc, then you reap what you sew and you should be handled accordingly. If you’re a company who set out to do the right thing and at some point you didn’t check all the regulation boxes, then right now is a moment for everyone to learn from your mistakes and redefine best practices for the entire industry. The goal should be to clear things up for anyone who wants to be a good actor in the space. I’d imagine that all of the above is in play, however, I hope everyone isn’t painted with a broad brush.
“It’s still very early days. Even the most legitimate companies in the space are still trying to determine exactly what it takes to properly meet US regulations. In turn, regulators are still trying to figure out how the rules they follow apply to digital and cryptocurrencies. We all must keep in mind that regulations and regulators such as the SEC are in place to protect investors. We may not always think we need them or agree with how their rules are applied, but we shouldn’t lose sight of the fact that they are intended to do good.”
