US Regulator Targets ICOs in Regulatory Sweep

The US Securities and Exchange Commission (SEC) has filed a number of subpoenas to both individuals and companies suspected of violating securities law by their involvement in initial coin offerings (ICOs), according to media reports.

In a response to the booming market for ICOs, the commission has requested information from firms that have sold tokens to finance their projects, and professionals who have assisted with the offerings, as reported by The New York Times.

The first subpoenas were filed last year, and the SEC has continued to contact companies and individuals over the past months, the report said, citing undisclosed people who have seen some of the agency’s subpoenas.

Nick Morgan, a former lawyer in the SEC’s enforcement division, told the paper that, according to his industry sources, the subpoenas had been sent out to up to 80 firms and individuals. Morgan, who is now a partner at the Paul Hastings law firm, said that those numbers would make the move one of the broader regulatory sweeps he had seen.

Bloomberg reports that Jay Clayton, the SEC Chairman, has repeatedly said the vast majority of ICOs should be registered with the commission, as the coins trade on secondary markets like other securities regulated by the agency. Last January, Clayton vowed to sanction more companies involved in ICOs “if people don’t change their ways”.

The Wall Street Journal, which first reported on the SEC’s move, says that the subpoenas include demands for information about the structure for sales and pre-sales of the ICOs.

The State of the Token Market, a recently released joint report by venture capital fund Fabric Ventures and token data platform TokenData, states that in 2017, more than USD 5.6 billion was collectively raised through ICOs worldwide.

“This compares to 1 billion dollars of ‘traditional’ venture investing in blockchain startups in the same timeframe and a ‘mere’ 240 million dollars raised by token sales in 2016,” according to the report.

However, the report also states that 48% of last year’s token sales were successful, and the 10 largest token sales raised roughly 25% of the total raised capital which translated into about USD 1.4 billion.