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SEC issues public ICO-crypto statement, industry reacts

SEC issues public ICO-crypto statement, industry reacts

Last updated 29th Jun 2022

On Dec. 11 SEC chairman Jay Clayton issued a public statement on cryptocurrencies and ICOs.

Mr. Clayton said that as of Dec. 11 “the SEC also has not to date approved for listing and trading any exchange-traded products (such as ETFs) holding cryptocurrencies or other assets related to cryptocurrencies. If any person today tells you otherwise, be especially wary.”

Investors need to know that much ICO activity occurs outside of America, so regulators may not be able to pursue bad actors and recover funds.

Market professionals must provide strong disclosures and additional investor protection, Mr. Clayton added.

“A change in the structure of a securities offering does not change the fundamental point that when a security is being offered, our securities laws must be followed. Said another way, replacing a traditional corporate interest recorded in a central ledger with an enterprise interest recorded through a blockchain entry on a distributed ledger may change the form of the transaction, but it does not change the substance.”

Market professionals were urged to read the SEC’s report on the DAO debacle from July.

Mr. Clayton also singled out some market professionals who were taking great steps to suggest the coins they were promoting were not securities.

“Following the issuance of the 21(a) Report, certain market professionals have attempted to highlight utility characteristics of their proposed initial coin offerings in an effort to claim that their proposed tokens or coins are not securities.  Many of these assertions appear to elevate form over substance.  Merely calling a token a “utility” token or structuring it to provide some utility does not prevent the token from being a security.  Tokens and offerings that incorporate features and marketing efforts that emphasize the potential for profits based on the entrepreneurial or managerial efforts of others continue to contain the hallmarks of a security under U.S. law.”

The document ends with a series of suggested questions investors should ask before parting with any money. They are posted at the end of this article.

The industry has reacted to Mr. Clayton’s comments. Read their thoughts below.

Jon Chou, CEO Bee Token

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If a digital wallet is involved, what happens if I lose the key?  Will I still have access to my investment?
  • If a blockchain is used, is the blockchain open and public?  Has the code been published, and has there been an independent cybersecurity audit?
  • Has the offering been structured to comply with the securities laws and, if not, what implications will that have for the stability of the enterprise and the value of my investment?
  • What legal protections may or may not be available in the event of fraud, a hack, malware, or a downturn in business prospects?  Who will be responsible for refunding my investment if something goes wrong?
  • If I do have legal rights, can I effectively enforce them and will there be adequate funds to compensate me if my rights are violated?
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