The SEC has started issuing subpoenas by the dozen and scores of information requests as it undertakes a full survey of the tech firms that populate the cyrptocurrency field.
The big probe comes after a wide variety of warnings from the securities regulator that strongly indicated its opinion that an ICO is, at best, a security in disguise trying to skate past regulations. The subpoenas and information requests specifically are seeking data on the sale and structure of ICOs, which exploded in popularity in 2017 as a means of raising funds quickly without a lot of regulatory oversight.
“Many promoters of ICOs and cryptocurrencies are not complying with our securities laws,” SEC chairman Jay Clayton said earlier this year. In another speech, he said he has instructed his staff to be “on high alert for approaches to ICOs that may be contrary to the spirit” of those laws.
It’s a result that no one should find all that surprising, notes former SEC commissioner and current blockchain firm board member Dan Gallagher.
“We’re seeing the tip of the iceberg … there is going to be a ton of enforcement activity,” Gallagher noted, going on to call much of the current market “the freaking Wild West—it is ‘Wolf of Wall Street’ on steroids.”
According to Wall Street Journal reporting, the ICO market estimates that $270 million to $317 million of the money raised by coin offerings has “likely gone to fraud or scams.” That data comes from a soon-to-be published MIT Data report.
While there have been a few limited salvos of enforcement, the recent run of documentation flowing out of the SEC to various industry players indicates to many experts and legal scholars that a dramatic uptick in enforcement may be coming soon.
The SEC scrutiny is focused in part on “simple agreements for future tokens,” or SAFTs, which are used in some of the most prominent crypto-fundraisings, according to people familiar with the matter.