After levying another enforcement action Monday in the Initial Coin Offering space, Securities and Exchange Commission Chairman Jay Clayton issued a warning to investors and advisors about the cryptocurrency and ICO markets.
“To date, no initial coin offerings have been registered with the SEC,” Clayton said in his Monday statement. “The SEC also has not to date approved for listing and trading any exchange-traded products (such as ETFs) holding cryptocurrencies or other assets related to cryptocurrencies. If any person today tells you otherwise, be especially wary.”
Bitcoin futures expiring in January were 18% higher and traded at $17,710 as of 12:25 p.m. in New York on Monday. That was up from an opening level of $15,000, on 3,561 contracts traded during their debut, according to the Global Markets Inc.’s exchange.
Clayton urged investors and advisors to review the investor alerts, bulletins and statements on initial coin offerings and cryptocurrency-related investments, including information on the marketing of certain offerings and investments by celebrities and others.
“If you choose to invest in these products, please ask questions and demand clear answers,” Clayton said.
While the assertion has been that cryptocurrencies “are not securities and that the offer and sale of cryptocurrencies are beyond the SEC’s jurisdiction,” Clayton continued, “whether that assertion proves correct with respect to any digital asset that is labeled as a cryptocurrency will depend on the characteristics and use of that particular asset.”
The answers, Clayton added, “often require an in-depth analysis, and the answers will differ depending on many factors.”
Clayton also warned investors that “these markets span national borders and that significant trading may occur on systems and platforms outside the United States. Your invested funds may quickly travel overseas without your knowledge.”
As a result, he said, “risks can be amplified, including the risk that market regulators, such as the SEC, may not be able to effectively pursue bad actors or recover funds.”
While ICOs, “whether they represent offerings of securities or not, can be effective ways for entrepreneurs and others to raise funding, including for innovative projects,” Clayton continued, he warned market professionals that “any such activity that involves an offering of securities must be accompanied by the important disclosures, processes and other investor protections that our securities laws require.”
A change in the structure of a securities offering “does not change the fundamental point that when a security is being offered, our securities laws must be followed,” he added. “Said another way, replacing a traditional corporate interest recorded in a central ledger with an enterprise interest recorded through a blockchain entry on a distributed ledger may change the form of the transaction, but it does not change the substance.”
The regulator urged market professionals – including securities lawyers, accountants and consultants — to “read closely” the investigative report the securities regulator released earlier this year and to review the SEC’s subsequent enforcement actions