Head of the U.S. Securities and Exchange Commission (SEC) Jay Clayton on CNBC explained the regulator’s position on the situation with two ICO projects: CarrierEQ Inc. (Airfox) and Paragon Coin Inc., which are obliged to register tokens as securities, pay fines and return funds to investors.
Clayton said that despite the fact that bitcoins are not securities, many ICO tokens have their characteristics, which means that tokens should either be offered to investors as part of private placement or be registered accordingly - however, no project has gone through this procedure today. ICO, held in offshore or claiming to be excluded from the rules as a private offering, according to him, do not represent any concerns for the SEC, but the unregistered offering of tokens violates the law.
However, the commission is considering applications for the opening of exchange-based index funds based on bitcoin (ETF). Clayton refrained from specifying the time of publishing the decisions on them but noted: many points that previously raised the regulator’s doubts - for example, the availability of reliable information regarding the bitcoin price or custodial services were clarified by the SEC.
Recall that earlier SEC accused the founder of the decentralized cryptocurrency exchange EtherDelta Zachary Coburn in the operational management of the unregistered exchange for the sale of securities. During the trial, he did not admit and did not reject the charges, but collaborated with the investigation and as a defense against a more serious punishment, he agreed to return his profit in the amount of $300,000 in favor of the United States, interest for the period before a court decision in the amount of $13,000 and $75,000 as a fine.
The United States regulator due to the increasing incidence of fraud tightened the control over the ICOs. The SEC’s actions are aimed at protecting potential investors from data fraud and theft of funds. Analysts have long said that one of the main signs of an unsafe project is the promise of big profits. In the field of cryptocurrency, there are many unqualified investors who can easily fall for the deception, organized by fraudsters.
In recent months, the SEC has significantly increased its actions regarding ICO projects. Last month, Yahoo Finance report came out, stating that by its actions the agency may harm startups, as they are in a limbo and do not know how to still comply with the SEC requirements.
In the middle of September, the Brooklyn District Court equated ICOs to issuing securities. The decision has been made as part of Maksim Zaslavskiy’s case on a fraudulent token sale organized by the businessman. At a preliminary hearing, Judge Raymond Dearie agreed with the prosecution which claimed that under the federal criminal law, Initial Coin Offerings are equal to issuing securities.
Recently this month, DRC and REcoin organizer pleads guilty to fraud. Zaslavskiy is now facing 37 months of prison for lying to approximately 1,000 investors and appropriating $2.8 million collected during the ICOs turned scam.
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