Cryptocurrency issuers are taking one of two tactics when dealing with the U.S. Securities and Exchange Commission (SEC)’s plans to regulate the market: falling in line or trying to find ways to get around the tougher guidelines.
Earlier this month, the SEC announced there were “potentially unlawful” systems operating that allow the trading of cryptocurrencies, adding that several online trading platforms should be registered with the SEC itself.
In addition, the commission issued potentially dozens of requests for information and subpoenas from companies who have dipped, or are dipping, corporate toes in the initial coin offerings (ICO) pool.
As a result, firms like North Carolina-based Causam eXchange are now offering tokens under the SEC’s “Reg D” rule, which allows the sale of securities to accredited investors as long as it involves customer checks and a holding period.
Causam CEO Joe Forbes told Reuters he chose this structure so as “not to go to jail.”
Armin Ebrahimi, CEO of Silicon Valley-based ShoCard, agrees. “It’s better to pay the cost upfront than to have the SEC come after you and shut you down.”
While ShoCard is preparing for an ICO in May, other companies like Silicon Valley-based startup Stream recently decided to put its planned ICO on hold because of regulatory uncertainty.
“If the SEC were to rule all tokens as securities, it’d be a huge blow to innovation in the crypto ecosystem here in the U.S,” said Simar Mangat, Stream’s chief executive.
But while some issuers are towing the line, others are trying to get around it. Executives at Estonia-based iOlite, Scotland-based CaskCoin, UK-based Celsius Network and Auctus have all barred U.S. citizens in an effort to avoid the SEC.
“Auctus will not sell tokens to the residents of the U.S. due to various regulatory issues,” said Daniel Duarte, co-founder of Auctus, which is launching its ICO this month.
Of course, these issuers will now have to screen out U.S. persons to fully comply with U.S. law. However, a sample of ICOs found that while 30 percent asked the registrant to check a box saying they were not a U.S. citizen, only 11 percent asked buyers to prove it.
“Companies that seek to avoid U.S. securities laws by only selling outside the U.S. may be jumping out of the pot and into the fire,” said Eric Kintner, partner at law firm Snell & Wilmer.