SEC chairman reinforces ICO warning
Jay Clayton also noted a growing trend of companies shifting to ICOs as alternative fundraising models.
United States Securities and Exchange Commission (SEC) chairman Jay Clayton has bolstered the regulator’s message to potential digital currency traders on the risks involved with initial coin offerings (ICOs).
In an exclusive interview with Fox Business this week, the SEC chairman warned that some ICOs are using the unique platform to avoid SEC regulation and oversight, which typically pertains to most private stock IPOs.
“For some reason, people selling ICOs seem to think that they don’t need to follow either path. They seem to think they can have the best of both worlds – a limited disclosure from a private placement and public trading and public offering of the token,” Clayton told Fox Business correspondent Hillary Vaughn.
Clayton said that the SEC is currently examining several ICOs to ensure they aren’t violating securities laws.
“Abide by the law. We’re watching, others are watching,” Clayton warned ICO organizers.
The SEC chairman also noted a growing trend of companies shifting to ICOs as alternative fundraising models.
“We have seen instances where companies seem to have had trouble raising money in a traditional private placement and then have switched to an ICO in order to raise the money. The business hasn’t changed substantially but it’s a form of over substance way to raise money, that is troubling,” Clayton said.
What else is the SEC doing?
Clayton and Commodity and Futures Trading Commission (CFTC) chairman J. Christopher Giancarlo asserted they would “devote a significant portion” of resources to inspecting and surveying the unseasoned ICO market.
Should you or shouldn’t you buy the latest cryptocurrency token? Last month SEC office of investor education and advocacy director Lori Schock decided to answer this query in an informal post published on investor.gov.
Earlier in February, the SECs Office of Compliance Inspections and Examinations (OCIE) published its annual list of priorities after SEC chairman Jay Clayton fielded questions concerning the oversight role of U.S. regulators with regards to virtual currencies at an open session Senate Committee hearing in Washington D.C.
OCIE plans to monitor the growth of digital currencies and initial coin offerings (ICOs), while examining registrants involved in offers and sales to ensure investors receive adequate disclosures about associated risks.
This systematic strategy may reveal answers to some of the questions posed by the Senate Committee during the hearing – in particular queries put forward by Senator Jack Reed concerning financial systemic risks.
In a staff letter distributed in January, the SEC advised that cryptocurrencies and related products pose “significant investor protection issues” and, for now, cannot be offered as exchange-traded funds (ETFs).
In November last year, the SEC posted an investor alert issuing a caution to potential investors seeking an “easy payday” by purchasing or signing up for paid-to-click memberships and advertising product packs.
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