SEC Enforcement Report Dominated By Discussion on ICO Malpractice

This entire year has been fraught with tension over the US Security and Exchange Commission’s attitude towards ICOs and the regulatory body’s 2018 annual Enforcement Report reflects that thoroughly. Although the SEC has not yet managed to formulate a clear set of regulatory directives for initial coin offerings or ICOs, it has repeatedly focused on ICOs and their allegedly high levels of malpractice and misconduct. This is the second time SEC is publishing such an annual report, with special emphasis on its efforts to minimise frauds that plague the financial system. The regulator aims to safeguard the interests of Main Street investors and the strategies for the same are usually outlined in such reports.

ICOs: The Highlight of The Report

This report saw a repeated emphasis on them, with about 30 references to ICOs. A whole sub-section was even set aside for discussing how the agency went about identifying and resolving malpractice connected to “digital assets and initial coin offerings”. The SEC describes this year as having been one of ICO “explosion”. The agency picked and chose carefully from amongst numerous examples of their attempts to curb ICOs, to curate a message that would reflect their attitude towards ICOs and guide issuers from both within and outside of the US.

Fundraising, meanwhile, has been falling steadily. September’s figures fell short of $300 million while back in January, the numbers had shot up to about $3 billion. The SEC has stated that it hopes to protect Main Street investors in such a way that does not throttle innovative impulses in the industry or curb capital formation that is legitimate and adherent. The report has warned against a rosy-eyed enthusiasm for ICOs as that can mask the high-risk character of these investment offerings. The report says:

“exuberance around these markets can sometimes obscure the fact that these offerings are often high-risk investments.”

SEC’s concern does not seem all too unfounded as recent times have seen a multiplicity of cases where ICOs used fake testimonials and claimed to use blockchain technology without having any real basis in the benefits the technology offers. 2018 alone has seen the SEC issue over 12 enforcement actions involving cryptocurrencies or ICOs. Many deals have siphoned off a great deal of money from investors before turning out to be false. One example is Titanium Blockchain which raised about $21 million through an ICO but then was found to have been giving a false account of being related to companies like PayPal or Fed. Another ICO went a step further and was sued for faking SEC approval. Another company, called TokenLot called itself an “ICO Superstore” but worked as a broker deal without registration.

The annual report’s detailing about ICOs can be found as a sub-section under “Policing Cyber-related Misconduct” and contains all the specifics of the cases the SEC handled this year.