SEC official urges caution on Initial Coin Offering (ICO)May 4, 2018
A top SEC (Securities and Exchange Commission) enforcement official has said that many so-called ICOs that are launching new cryptos are, in fact, disguised securities offerings. This, the official, points out may be putting cryptocurrency investors at risk.
“They are raising so much money, but they are not complying with regulations and rules that are meant to protect the investor,” explains Valerie Szczepanik who is the enforcement assistant director at the SEC and also heads the financial watchdog’s working group on digital currency.
The official was speaking at a New York conference whose theme was “The Future of Financial Fraud.” The conference was organized by the University of California’s Berkeley Center for Law and Business.
Since 2016, Initial Coin Offerings have raised an estimated $9.8 billion, reports research done by Autonomous Next, a research company. In the first 3 months of this year alone, Initial Coin Offerings have collected about $3.5 billion.
While Valeria Szczepanik didn’t single out a specific initial coin offering, the official pointed out that too many of such ICOs are designed such that they don’t launch the virtual coins they purport to, but only raise funds for the firm behind the ICO. They then allow the investors to keep speculating, which is the very definition of security under the law.
“You realize that what we are seeing is issuance of tokens before a platform is even built,” she notes and proceeds to mention that most ICOs do not provide even the basic disclosure and transparency that is required by law. The official reveals that as a result, the SEC is looking very closely at Initial Coin Offerings and has already started taking very aggressive actions against those running them inappropriately.
However, a founder of a firm which invests in Virtual currency platforms and who attended the same conference argued that the laws on securities that have been in place from the Great Depression days need some updating such that they consider the rise of digital currencies.
“Cryptocurrency is not going anywhere, it’s here to stay,” asserted Barry Silbert, who is the Chief Executive Officer of Digital Currency Group. He went on to add that “money is becoming more digital by the day.”
But Barry Silbert also acknowledged that initial coin offerings could be risky, which is the reason his firm only puts its money in cryptocurrency platforms, and not on virtual currencies themselves. “Individuals are likely going to lose so much money on Initial Coin Offerings,” he said.
Many proponents of cryptocurrencies say that the blockchain technology that is behind virtual currencies can actually mitigate, even get rid of fraud if it is used well because for every transaction, the technology creates some virtual ledger.
“This technology enables huge transparency that’s unprecedented in any financial market,” explains Jonathan Levin, a panelist and Chief Operating Officer at Chainalysis, a firm that helps companies to identify sources of monies behind initial coin offerings.
Valeria Szczepanik noted that the Securities and Exchange Commission is trying hard to strike some balance between facilitating the emerging technologies and protecting investors. “We don’t want to chill markets, and we don’t want to ignore what the blockchain technology is promising,” she said.