The initial public offering of digital coins known as ICO’s has slowed slightly over the past year as
investors are now more aware of the potential issues that could arise from these offerings. Any capital raise related to digital coins that occur in the United States, need to be reported to the US Securities and Exchange commission. A recently as January of 2020, two ICO’s that were completed in 2018 were changed with fraudulent sales of unregistered digital asset securities. The SEC says that any token sales that are sold to US residents and not registered with the SEC remain in violation of federal securities laws. In January the SEC issued a warning to investors stating that companies and individuals should veer away from participating in initial coin offerings.
Charges are Rising Faster than ICO’s
Federal charges levied by the SEC are rising at a pace that is likely faster than new ICOs. According to CoinDesk, during the period 2016 and 2020, the SEC filed charges against 27 completed ICOs. This number does not include ongoing investigations or the cases that have yet to publicly disclose settlement terms. To help avoid charges, the SEC has proposed safe havens for companies launching token sales for blockchain network growth.
SEC Plan for ICO’s
The SEC proposal focuses a grace period that would provide time for a new token to decentralize which would also allow the ICO team to provide the necessary documentation and programing disclosures. This gives the ICO group an opportunity to provide the information that the SEC would be requesting for an ICO. Groups that plan to launch a token and do not want to go through this process are sending up a red flag. The decentralization process allows a token enough time that it would move away from being considered a security on the SEC definition. Many believe this a very good proposal and could lead to addition assets moving onto a digital token platform.
The White House Wants the Treasury to Have Oversight
In early February the White House released a copy of its fiscal year 2021 budget that was an eye popping $4.8 trillion. Withing the documentation the budget proposes that the US Treasury Department gains oversight over crypto currency by returning the United States Secret Service, now a division of the Department of Homeland Security, to its jurisdiction at the US Treasury. Currently, the US Secret Service has the responsibility with the protection of US currency. Secret Service’s cryptocurrency investigations could work in conjunction with the US Financial Crimes Enforcement Network (FinCEN), which currently monitors cryptocurrency-related violations. While the concept of this proposal seems like it would enhance the US government enforcement efforts, the proposal for the budget is a long way from beginning a law in the US. Proposals do not provide the backdrop for a change in the way ICOs are regulated.
Take Away
The US government has seen enough issues related to ICOs to push forward with new ways to help investors avoid cryptocurrency fraud. The SEC enforcement actions continue to accelerate, with most of the issues that have already occurred during the 2017-2018 period. The SEC has provided a safe-harbor period, and states that any effort to raise capital for a new cryptocurrency that is not registered with the US SEC is illegal. In addition, the Trump Administration is attempting to wrestle further oversight of cryptocurrencies by bringing the US Secret Service back to the US Treasury Department and away from its current home at Homeland Security.
