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S.E.C. Chief Says ICOs Are a Good Way to Raise Capital - As Long as Security Laws Are Followed
FinTech, Blockchain, Financial Services
To say the U.S. Securities and Exchange Commission has held a skeptical view of cryptocurrencies and initial coin offerings (ICOs) would be a major understatement.
There have been the warnings to investors about the inherent risks of ICOs and cryptocurrency investment funds; the charges against ICOS for defrauding or misleading investors; and the pushback against celebrity endorsed coin offerings. Speaking at a Senate hearing on cryptocurrencies earlier this year, S.E.C. Chairman Jay Clayton noted that there are “a lot of smart people who think there is something to the value of the cryptocurrency and the international exchange,” but added that he’s “not seeing those benefits manifesting themselves in the marketplace yet.”
However, in a speech delivered in New York on Dec. 6, Clayton appeared to soften his stance on coin offerings. While not actually giving them his endorsement, he at least acknowledged the value they could bring to the marketplace.
“I believe that ICOs can be effective ways for entrepreneurs and others to raise capital,” Clayton said. “However, the novel technological nature of an ICO does not change the fundamental point that, when a security is being offered, our securities laws must be followed.”
The issue of whether or not an ICO can be treated as a security has been an ongoing debate for regulators and investors across the globe. A federal judge in Brooklyn ruled in September that ICOs can in fact be regulated by U.S. securities laws, which could potentially provide the S.E.C. with significant ammunition in its regulatory efforts over the crypto market.
U.S. District Judge Raymond Dearie in Brooklyn, New York ruled “that the government can proceed with a case alleging that an initial coin offering is a security for purposes of federal criminal law,” as Bloomberg reported. Judge Dearie’s ruling came in a case in which the SEC had charged a Brooklyn businessman named Maksim Zaslavskiy and two of his companies with “selling unregistered securities, and the digital tokens or coins being peddled don’t really exist.”
In his speech earlier this month, Clayton said he expects the S.E.C. to ramp up its focus on blockchain technology, cryptocurrencies and ICOs in 2019, noting that the agency recently announced the formation of a new Strategic Hub for Innovation and Financial Technology (“FinHub”).
“A number of concerns have been raised regarding the digital assets and ICO markets, including that, as they are currently operating, there is substantially less investor protection than in the traditional equities and fixed income markets, with correspondingly greater opportunities for fraud and manipulation,” Clayton said.