The Securities and Exchange Commission has been saying for months in the public sphere that ICO tokens can be securities. Well, in a criminal fraud case in the crypto-world, a US federal judge has said the US securities laws may be applied against a man that has been charged with promoting questionable cryptocurrencies. This is no surprise but note that it is the first time a judge has agreed with the SEC on ICOs. A federal court agreeing with the SEC does have deep meaning. This news, reported on Bloomberg, is eye-opening, to say the least.
In another case, a company which called itself an ICO Superstore was charged with acting as an unregistered broker-dealer. If securities are sold in the US, this comes under the watchful eye of the Securities and Exchange Commission. However, many have said that tokens are not securities. Well, if a firm sells tokens and the SEC bring charges, then it is crystal clear that from the viewpoint of the SEC, these products are considered securities. Selling securities as an unregistered broker-dealer is illegal.
Now this means that not only the people issuing the ICOs, but those “exchanges” that are trading the coins or tokens are now taking legal risk. So now those issuing ICOs, as well as exchanges and brokers are all subject to risk. There have been other situations, one in which a crypto hedgefund manager raised $3.6 million dollars, who claimed that the fund was regulated by the SEC, when in fact it was not.
As this market matures, we at Classiarius see opportunities for investors. However, being young and still having a lot of questionable players in the mix is a problem that will take some time to change. We will be writing more about regulators and their fight to bring this Wild Wild West market into the mainstream.