The Division of Enforcement of the United States Securities and Exchange Commission (SEC) continues to be focused on issues related to initial coin offerings (ICOs) and digital assets. This is indicated in the SEC Enforcement Division Annual Report for Fiscal Year 2018.
The report notes that over the last few years, the prevalence of crypto-asset offerings, including ICOs, has exploded. However, the exuberance around these markets often obscures the fact that these offerings may be high-risk investments. Moreover, some of the offerings are simply outright frauds misrepresented as emerging technology.
The Division has used public statements to send messages to the ICO and digital asset marketplaces on issues such as the potentially unlawful promotion of ICOs by celebrities and others, and the risks associated with online trading platforms for digital assets.
When warranted, the Division has recommended enforcement actions to the SEC in matters involving ICOs. As of the close of FY 2018, the SEC had brought over a dozen stand alone enforcement actions involving digital assets and ICOs. The full list of such actions is available here. FinanceFeeds has provided detailed coverage of a number of these actions, including the emergency action the SEC took against PlexCorps and its founders in December 2017, as well as the action against BitFunder and Jon Montroll.
While many of these cases have involved allegations of fraud, the Division also has launched enforcement actions to ensure compliance with the registration requirements of the federal securities laws. One example is the action against Longfin. In the past year, the Division has opened dozens of investigations involving ICOs and digital assets, many of which were ongoing at the close of FY 2018.
The Division’s focus also goes beyond the issuers of ICOs. In FY 2018, the Commission announced a settled order against two individuals who ran a self-described “ICO Superstore” that operated as an unregistered broker-dealer and participated in unregistered offerings. On the same day, the Commission filed a settled action against a hedge fund manager Crypto Asset Management LP (CAM) that violated an investment company registration provision based on its investments in digital assets.
The Division also has recommended that the Commission use its trading suspension authority to prevent investors from being harmed by possible scams. In both FY 2017 and FY 2018, the Commission suspended trading in the stock of over a dozen publicly traded issuers because of questions concerning, among other things, the accuracy of assertions regarding their investments in ICOs and operation of cryptocurrency platforms.
The most recent example of such a suspension dates from late October 2018. The SEC has suspended trading in the securities of American Retail Group, Inc. (ARGB), also known as Simex Inc, over making of false cryptocurrency-related claims. And, in April this year, the regulator announced a temporary suspension of trading in the securities of IBITX Software Inc. (IBXS), a New York corporation, due to questions regarding the accuracy of assertions by IBXS in press releases to investors and disclosure statements concerning, among other things, the company’s development of alternative forms of currency, and the company’s operation of a cryptocurrency platform.