SEC Chairman Jay Clayton issued a Statement on Cryptocurrencies and Initial Coin Offerings, urging investors to beware when investing in cryptocurrencies and initial coin offerings (ICOs). Clayton warned that a “number of concerns have been raised regarding the cryptocurrency and ICO markets, including that, as they are currently operating, there is substantially less investor protection than in our traditional securities markets, with correspondingly greater opportunities for fraud and manipulation.”
Clayton’s statement provides that:
- To date no initial coin offerings have been registered with the SEC. The SEC also has not to date approved for listing and trading any exchange-traded products (e.g., ETFs) holding cryptocurrencies or other assets related to cryptocurrencies.
- If you choose to invest in these products, ask questions and demand clear answers. The SEC has issued investor alerts, bulletins and statements on initial coin offerings and cryptocurrency-related investments, including with respect to the marketing of certain offerings and investments by celebrities and others.
- As with any other type of potential investment, if a promoter guarantees returns, if an opportunity sounds too good to be true, or if you are pressured to act quickly, please exercise extreme caution and be aware of the risk that your investment may be lost.
- Cryptocurrency and ICO 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, 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.
Clayton also urged caution for market professionals dealing in cryptocurrencies and ICOs. Clayton cautioned market participants “against promoting or touting the offer and sale of coins without first determining whether the securities laws apply to those actions.” Selling securities generally requires a license, and experience shows that excessive touting in thinly traded and volatile markets can be an indicator of “scalping,” “pump and dump” and other manipulations and frauds.
Clayton noted specifically on cryptocurrencies:
- While there are cryptocurrencies that do not appear to be securities, simply calling something a “currency” or a currency-based product does not mean that it is not a security. Before launching a cryptocurrency or a product with its value tied to one or more cryptocurrencies, its promoters must either:(a)be able to demonstrate that the currency or product is not a security; or(b)comply with applicable registration and other requirements under our securities laws.
- Brokers, dealers and other market participants that allow for payments in cryptocurrencies, allow customers to purchase cryptocurrencies on margin, or otherwise use cryptocurrencies to facilitate securities transactions should exercise particular caution, including ensuring that their cryptocurrency activities are not undermining their anti-money laundering and know-your-customer obligations.
Not a subscriber? Sign up for a Free Trial