SEC Set to Crackdown on Digital Currency Operators
Tuesday, Wall Street’s main regulator said that ICO’s (initial coin offerings), a means of crowdfunding for blockchain technology companies, should be subject to the same safeguards required in traditional securities sales.
ICOs have become a bonanza for digital currency entrepreneurs, allowing them to raise millions quickly by creating and selling digital “tokens” with no regulatory oversight.
The Securities and Exchange Commission (SEC) has said that the tokens can be considered securities, and therefore, may need to be registered unless a valid exemption applies.
“The innovative technology behind these virtual transactions does not exempt securities offerings and trading platforms from the regulatory framework designed to protect investors and the integrity of the markets,” said the co-Director of the SEC’s Enforcement Division.
The decision reminds blockchain startups that they cannot ignore investor protections, and could make some potentially more cautious about fundraising via coin sales in the United States.
By mid-July, tech firms raised about $1.1-B in 89 coin sales this year, roughly 10X more than that in tY 2016, according to data compiled HeffX-LTN by a crypto-currency research.
This year alone, there are 110 upcoming ICOs, according to tokendat.io, a website that tracks token sales.
This is a shot across the bow for the ICOs, it blocks the path to cash in the US for sure.
The SEC noted: Some ICOs have drawn criticism because they failed to accurately disclose token distribution, such as what proportion of tokens would be held by founders or whether the offering would be capped.
As many of these tokens are then listed and traded on virtual currency exchanges, large holders could have the ability to control the price.
Critics warn that projects often lack realistic business plans or are being led by individuals who do not have enough experience.
The SEC’s decision was released in an investigative report into a virtual organization known as The DAO.
The DAO was created in April 2016 by a blockchain company called Slock.it.
A blockchain is an online ledger of transactions maintained by a network of computers, which gained prominence as the technology that underpinned digital currencies such as Bitcoin (BTC).
The DAO was designed as a decentralized crowdfunding model in which anyone could contribute Ethereum tokens to be a voting member and have an equity stake in the organization.
Ethereum (ETH) is another cryptocurrency.
Although it raised $150-M as of late May last year, an anonymous hacker later funneled $60-M of the ETH tokens into a separate account.
The SEC said in its report that it has decided not to bring civil charges at the end of its probe into The DAO, but instead use the case as a cautionary tale for the market.
Where there is Smoke there is Fire. It is your money and therefore your responsibility
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