SEC releases ICO guide providing regulatory clarity

The ever-present regulatory hammer of the U.S. Securities and Exchange Commission (SEC) released an initial coin offering (ICO) guide to provide clarity on regulation.

The SEC cracked down on multiple ICOs in 2018, as reported by Crypto Insider. Although, cryptocurrency was, and still seems to be, a regulatory gray area in many ways.

To help bring clarity to the situation, the SEC released a “guide to initial coin offerings”, as mentioned in a Tweet on February 10.

Years of gray areas

According to the first sentence of the guide on the SEC’s website, “[c]ompanies and individuals are increasingly considering initial coin offerings (ICOs) as a way to raise capital or participate in investment opportunities.”

It appears as though the SEC may be a bit behind the times regarding ICOs, or at least the current state of ICOs. The sentiment perceived from the guide’s first sentence would have been true as of 2017, or even as of the first half of 2018. ICOs gathered roughly $5.6 billion in funds in 2017, according to an article from Busines Insider based on data from Fabric Ventures and TokenData.

ICOs, however, have largely died off, as noted in multiple ICO data reports from SCDE Ventures. According to a report from last fall, October saw an 81% ICO failure rate.

SEC ICO guide

The SEC guide laid out several areas people should take into account when looking at ICOs. Perhaps most notably, the guide stated ICOs “may be securities offerings, and fall under the SEC’s jurisdiction of enforcing federal securities laws.” Adding to that note, “ICOs that are securities most likely need to be registered with the SEC or fall under an exemption to registration,” the guide said.

The SEC nailed multiple ICOs in 2018 based on those ICOs being unregistered securities. Back in November, CNBC reported on Airfox and Paragon, two projects which saw regulatory repercussions because they did not register with the SEC.

Other aspects mentioned in the guide included warnings about potentially fraudulent ICOs, risk of loss and the need for investor research and understanding.

Interestingly, the guide also noted, “[a]s SEC Chairman Jay Clayton has stated, tokens and offerings that feature and market the potential for profits based on the entrepreneurial or managerial efforts of others contain the hallmarks of a security under U.S. law.”

The guide explained market professionals should proceed with caution, adding, “those who operate systems and platforms that effect or facilitate transactions in these products should be aware that they may be operating unregistered exchanges or broker-dealers that are in violation of the Securities Exchange Act of 1934.”

The market saw such associated action in September 2018 when the FBI seized 1Broker, the stock exchange trading affiliate of bitcoin trading exchange 1Fox. The guide also states multiple other areas, points and guidelines to consider.

*This article contains opinions from the author.

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