SEC Chair Says Agency On 'High Alert' For ICO Violations
The chairman of the Securities and Exchange Commission said in a recent speech agency staff will be on high alert for initial coin offerings that violate securities laws – and issued a stern warning to lawyers and other market professionals about their professional obligations.
Speaking at the Securities Regulation Institute late last month, SEC Chairman Jay Clayton said lawyers, accountants and dealers are expected to act responsibly and bring “expertise, judgment, and a healthy dose of skepticism” to their work.
“To be blunt, from what I have seen recently, particularly in the initial coin offering space, they can do better,” he said.
Clayton highlighted two scenarios to reinforce the point. The most disturbing, he said, are ICOs where lawyers appear to help structure an offering that has many features of a securities offering but claim the products are not securities. Promoters then proceed without compliance with securities laws.
The second scenario, he said, involves lawyers who appear to have taken a “step back” from certain issues - such as whether a coin is a security - even when registration would likely be warranted. Rather than advising clients the product is likely a security, they provide “it depends” equivocal advice, he said, and clients who willing to take the risk proceed with the ICO without complying with securities laws.
“With respect to these two scenarios, I have instructed the SEC staff to be on high alert for approaches to ICOs that may be contrary to the spirit of our securities laws and the professional obligations of the U.S. securities bar,” Clayton said.
Acknowledging that securities lawyers and accountants aren’t involved in all ICOs, Clayton said the SEC has made efforts to educate the public that unregistered securities investments can be “in a word, dangerous.” Indeed, the agency has issued a number of cautionary statements to Main Street investors in recent months and has also warned that celebrity endorsements of ICOs could be illegal if compensation is not disclosed.
The SEC chairman also said the agency is looking closely at the disclosures of public companies that shift their business models in an effort to capitalize on the perceived promise of distributed ledged or blockchain technology.
“The SEC is looking closely…whether the disclosures comply with the securities laws, particularly in the case of an offering,” he said.