The Securities and Exchange Commission (SEC) is cracking down on cryptocurrency companies operating outside of its laws.

By Joe McDonough


Posted on March 2, 2018

The watchdog of Wall Street has reportedly sent up to 80 subpoenas to technology companies involved in cryptocurrency, as well as their lawyers and advisors.

The Wall Street Journal reported on Wednesday the SEC’s investigation is centering on companies that have launched initial coin offerings (ICOs), cryptocurrency’s equivalent to an initial public offering (IPO).

While the SEC is yet to comment on the subpoenas, it has been outspoken in the view that virtual currencies should be categorised as securities and registered with regulators.

Last month, SEC chairman Jay Clayton revealed not a single ICO zero had been registered with the Commission as of February 6, and according to Coindesk the companies behind them had raised $US5 billion through the fund-raising model in 2017.

“Many ICOs are being conducted illegally,” Clayton said at the time. “Their promoters and other participants are not following our security laws. Some people say that’s because the law isn’t clear, I do not buy that for a moment.”

Many ICOs are being conducted illegally… Some people say that’s because the law isn’t clear, I do not buy that for a moment.

Nick Morgan, a former lawyer with the SEC told the New York Times he’s been made aware that as many as 80 companies and individuals have been issued with subpoenas.

However, Coindesk says it has spoken to lawyers who put the total in the hundreds, and there has been a recent surge since deliveries of requests for information began in the fall.

It is understood the writs are being sent out from offices in multiple cities, including Boston, San Francisco and New York, and demand the disclosure of almost every minute morsel of information regarding the cryptocurrencies they have sold, including the identity of the investors who bought them, and organisational structures.

Aaron Kaplan, a securities attorney and co-founder of Prometheum, a start-up which specialises in legitimising investments, expects the SEC to claim some big scalps.

“Generally, subpoenas are the guided missiles of SEC enforcement actions,” he said.

“There’s going to be a big reckoning for those who have operated outside the Federal Securities Laws, with more SEC enforcement actions and criminal prosecutions in the near future.”

Of course, a number of enforcement actions are already underway.

California-based company Munchee was found to have offered and sold unregistered securities, and was ordered to refund tokens sold in its $15 million ICO.

Texas-based AriseBank is another caught in the SEC’s crosshairs, with the regulator suing the cryptocurrency banking company for alleged fraud and issuing unregistered securities.

So, it will be interesting to see where this reinvigorated effort from the SEC leads.