Securities and Exchange Commission chairman Jay Clayton recently defended the agency’s regulatory initiatives while acknowledging the legitimacy of initial coin offerings (ICOs) during a talk at Princeton University.
CoinDesk reported that Clayton responded “absolutely not” to a question about whether ICOs are fraudulent, in relation to the agency’s recent regulatory actions against ICOs such as charging Centra Tech’s ICO with fraud.
Sohrab Sharma and Robert Farka of Centra Tech were charged with fraud after they raised $32 million by selling unregistered securities.
Clayton made remarks during his talk at “Cryptocurrency and Initial Coin Offerings.” He made headlines during his last public statements when he said he believes that “every ICO” he has seen qualifies as a security.
Chairman Clayton contended that regulatory steps being taken by the agency could actually help the industry mature.
Clayton said to the attendees:
“Is the approach taken in Washington by the SEC adversely affecting distributed ledger technology in other areas? My quick answer is that my hope is that it’s actually helping – because this technology is being used for fraud and to the extent that it’s being used for fraud, history shows that government comes down harshly on that technology later.”
He continued, “I think if we don’t stop the fraudsters, there is a serious risk that the regulatory pendulum – the regulatory actions will be so severe that they will restrict the capacity of this new security.”
Currently, cryptocurrency regulations vary state by state and federal plans are not yet clear. However, one certainty is the SEC is not backing away from its plans for ICO regulations, although the Chairman of the SEC hasn’t wavered in his support for the future of blockchain technology.
Washington, D.C. — The House Subcommittee on Capital Markets, Securities, and Investment (Committee on Financial Services), on Wednesday, held a hearing entitled “Examining the Cryptocurrencies and ICO Markets.” During the hearing, Rep. Brad Sherman (D-CA) read a statement that called cryptocurrencies “harmful,” and appeared to accidentally admit that cryptocurrency reduces government control of the dollar.
BitsOnline noted that it’s unclear “whether his most infamous statements during the March 14th crypto hearing were on behalf of, or in the stead of, Rep. Carolyn B. Maloney (D-NY).” Notwithstanding, Sherman spoke assertively while reading the statement.
Sherman began by referring to cryptocurrency as “a crock,” and went on to perpetuate pop culture stereotypes and and fears about the industry, saying, “Cryptocurrencies are popular with guys who like to sit in their pajamas and tell their wives they are going to be millionaires. They help terrorists and criminals move money around the world. Tax evaders. They help startup companies commit fraud, take money, and one percent of the time they actually create a useful business.”
As Sherman continued to rebuke cryptocurrency and those who utilize the technology, he seemingly revealed the real reason government fears widespread consumer adoption of cryptocurrency.
“It hurts the U.S. government in two ways,” Sherman said. “Our contr….” Sherman began, as he appeared he was about to say “our control.” Although he stopped himself prior to uttering the entire phrase, he continued by saying, “…our ability to have the US dollar as the chief means of international finance is what has underpinned our ability to impose sanctions,” illustrating that monetary policy and the dollar are used as a system of control by the U.S. government.
It should thus come as no surprise that the top industries funding Sherman’s election campaigns are securities and investment related entities.
According to a report from CryptoCoinsNews, it was revealed on Reddit that Sherman’s top contributor for 2017-2018 is digital payment processor Allied Wallet- a company that stands to encounter significant competition from more efficient and private payment systems that have been created with blockchain technology. Overall, Sherman received $56,700 from the securities and investment industry.
Bank of America recently acknowledged that cryptocurrencies pose a challenge to their earnings, stating that “widespread adoption of new technologies,” including cryptocurrencies, may compel the company to make “substantial expenditures” in order to compete with such innovations.
Certain members of Congress like Rep. Tom Emmer (R-MN), member of the Congressional Blockchain Caucus, showed a better understanding of the technology and its implications.
“This is something that Democrats and Republicans should be celebrating here in Congress not going ‘oh my gosh, this is terrible, we don’t understand it’,” Emmer said.
“I tend to trust people and believe that they’re in these things for good, and that they’re trying to improve their own lives and hopefully the lives of people around them — that old adage that a rising tide lifts all boats. And yet I hear elected officials who don’t have any concept of what we’re dealing with here and how exciting it is, talking about how we got to regulate and create more government infrastructure. I respectfully disagree that that won’t act as a wet blanket on this amazing new technology. I realize there has to be some regulation, but there’s got to be balance,” Emmer said.
Coinbase’s chief legal and risk officer Mike Lempres, Georgetown University law professor Dr. Chris Brummer, and Wilson Sonsini Goodrich and Rosati partner Robert Rosenblum served as expert witnesses at the hearing, which is Congress’ first foray into potential regulatory issues surrounding initial coin offerings (ICOs).
The U.S. Securities and Exchange Commission (SEC) has issued a warning regarding cryptocurrency exchanges; according to the SEC, some exchanges may be in violation of federal laws governing trading.
A statement issued by the SEC on March 7th stated:
Online trading platforms have become a popular way investors can buy and sell digital assets, including coins and tokens offered and sold in so-called Initial Coin Offerings (“ICOs”). The platforms often claim to give investors the ability to quickly buy and sell digital assets. Many of these platforms bring buyers and sellers together in one place and offer investors access to automated systems that display priced orders, execute trades, and provide transaction data.
A number of these platforms provide a mechanism for trading assets that meet the definition of a “security” under the federal securities laws. If a platform offers trading of digital assets that are securities and operates as an “exchange,” as defined by the federal securities laws, then the platform must register with the SEC as a national securities exchange or be exempt from registration. The federal regulatory framework governing registered national securities exchanges and exempt markets is designed to protect investors and prevent against fraudulent and manipulative trading practices.
“The SEC staff has concerns that many online trading platforms appear to investors as SEC-registered and regulated marketplaces when they are not. Many platforms refer to themselves as “exchanges,” which can give the misimpression to investors that they are regulated or meet the regulatory standards of a national securities exchange,” read the statement. “Although some of these platforms claim to use strict standards to pick only high-quality digital assets to trade, the SEC does not review these standards or the digital assets that the platforms select, and the so-called standards should not be equated to the listing standards of national securities exchanges.”
The SEC statement included a clear warning to unregistered trading platforms:
A platform that trades securities and operates as an “exchange,” as defined by the federal securities laws, must register as a national securities exchange or operate under an exemption from registration, such as the exception provided for ATSs under SEC Regulation ATS. An SEC-registered national securities exchange must, among other things, have rules designed to prevent fraudulent and manipulative acts and practices…
…Further, a national securities exchange must itself comply with the federal securities laws and must file its rules with the Commission.
“In advancing the SEC’s mission to protect investors, the SEC staff will continue to focus on platforms that offer trading of digital assets and their compliance with the federal securities laws,” the statement concluded.
The statement was issued a week after reports that the SEC has been sending out subpoenas to companies that have launched ICOs. According to TechCrunch, it appeared “that the SEC is requesting details of sale structures and the pre-sale elements to them, which often include deep discounts for those investing large sums or committing to an ICO early on.”
Coindesk reported that “few attorneys or industry stakeholders are willing to talk on the record about the investigations,” and noted thatTechCrunch founder Michael Arrington, “who raised $100 million to start crypto hedge fund, Arrington XRP Capital,” acknowledged receiving a subpoena.
According to Fox Business, the commission has been “looking at several ICOs to ensure they are not violating securities laws.” SEC Chairman Jay Clayton recently told the network that he has observed a significant portion of ICOs and while “it’s a technology that I really think is pretty cool and can change the way people do business at a great deal of efficiency,” he said he’s found that they qualify as securities offerings and they must follow SEC regulations.
Clayton told Fox Business:
“Many ICOs and many of the ones I’ve looked at specifically are securities….for some reason, people selling ICOs seem to think they don’t need to follow either path; they seem to think they can have the best of both worlds: a limited disclosure from a private placement and public trading and public offering of the token.”
“Abide by the law,” Clayton added. “We are watching. Others are watching.”