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State Regulators Bust ICOs in ‘Operation Cryptosweep’

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The North American Securities Administrators Association said Monday that it has brought nearly 70 inquiries and investigations — including 35 pending or completed enforcement actions — related to ICOs or cryptocurrencies since the beginning of May as part of its international “Operation Cryptosweep.”

NASAA said the sweep was one of the largest coordinated series of enforcement actions by state and provincial securities regulators in the United States and Canada to crack down on fraudulent initial coin offerings, cryptocurrency-related investment products, and those behind them.

Meanwhile, the same day at the Financial Industry Regulatory Authority’s annual conference in Washington, FINRA CEO Robert Cook said that the broker-dealer self-regulator may issue a Regulatory Notice to provide guidance for broker-dealers and highlight “some of the areas [BDs] need to think about if you’re going to get involved” in digital assets.

“We see a lot of concerns in this [ICO] area,” Cook told attendees. “I think the SEC has done a great job of identifying some of the core concerns, with ICOs and other types of assets,” Cook added. FINRA has “seen some [issues] and are monitoring some that give us concern, but we also don’t want to paint [with] too broad a brush.”

Joseph Borg, NASAA president and director of the Alabama Securities Commission, said, “The persistently expanding exploitation of the crypto ecosystem by fraudsters is a significant threat to Main Street investors in the United States and Canada, and NASAA members are committed to combating this threat.

“Despite a series of public warnings from securities regulators at all levels of government, cryptocriminals need to know that state and provincial securities regulators are taking swift and effective action to protect investors from their schemes and scams.”

In April, NASAA organized a task force of its member state and provincial securities regulators to begin a coordinated series of investigations into ICOs and cryptocurrency-related investment products.

The “initial actions” announced Monday occurred between May 1 and May 21, a NASAA spokesman told ThinkAdvisor. NASAA “will be providing an update in late June for ongoing investigations.”

The “initial phase should continue through June,” the spokesman added.

Commonwealth Secretary William Galvin of Massachusetts announced Monday that his office, as part of the sweep, entered into a settlement with Blue Vase Holdings LLC in which the company agreed to cease and desist in selling unregistered securities in Massachusetts. Blue Vase Holdings also agreed to an administrative fine and censure, and to offer rescission to investors.

“This action is a signal to those who seek to take advantage of Massachusetts investors that my Securities Division is committed to swiftly and effectively protecting investors from schemes and scams involving these products,” Galvin said.

Other actions include Colorado’s Securities Division ordering a cease and desist for Broad Investments LLC, and Guoyong Liu, while the North Carolina Securities Division ordered a permanent cease and desist against Power Mining Pool.

The actions announced Monday, Borg said, “are just the tip of the iceberg,” noting that the task force also found approximately 30,000 crypto-related domain name registrations, the vast majority of which appeared in 2017 and 2018.

A critical component of the sweep is raising public awareness of the risks associated with ICOs and cryptocurrency-related investment products.

“Not every ICO or cryptocurrency-related investment is fraudulent,” Borg said, “but we urge investors to approach any initial coin offering or cryptocurrency-related investment product with extreme caution.”

— Check out Congressman to SEC on ICO Market: ‘Shut It All Down’ on ThinkAdvisor.