Following months of warnings, the US Securities and Exchange Commission (SEC) has begun to crack down on initial coin offerings (ICOs) that violate federal securities laws.
According to the publication, the subpoenas demanded information related to the structure of ICOs and their corresponding presales, which have collectively raised billions of dollars to bootstrap blockchain-related projects. The largest of these to date, the Telegram ICO, is expected to surpass $2 billion in the presale alone.
The SEC had made clear in past statements that this crackdown was coming. Last summer, the agency ruled that the infamous DAO tokens should have been subject to federal securities laws, confirming the SEC’s authority to police the ICO markets for tokens that should be registered with the agency.
Most ICO issuers market their coins as “utility tokens,” arguing that they are not subject to securities requirements if they are built to serve as a sort of “coupon” for a product or service.
However, SEC Chairman Jay Clayton stated on multiple occasions that virtually every ICO he had seen constituted a securities offering, even though no ICO operator has registered its token sale with the agency.
“There should be no misunderstanding about the law,” Clayton said in prepared remarks at a recent US Senate hearing. “When investors are offered and sold securities – which to date ICOs have largely been – they are entitled to the benefits of state and federal securities laws and sellers and other market participants must follow these laws.”
Notably, the SEC is reportedly investigating ICO operator’s use of simple agreements for future tokens (SAFTs), documents which many token sales have adopted in a bid to exempt themselves from ordinary securities registration requirements.
Last week, Bloomberg reported that at least 12 companies had already put the brakes on launching their ICOs after receiving inquiries from the SEC’s cyber enforcement unit.
It is unclear how far the SEC intends to carry the probe, but it will likely make startups think twice before they issue tokens — or at least devote more time and resources to legal compliance.
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