From: Holland & Hart LLP Press Release
Kenyon Redfoot, Lucy Stark
Escalating its regulatory scrutiny of initial coin offerings (“ICOs”), the U.S. Securities and Exchange Commission (the “SEC”) has recently issued subpoenas to a reported 80 or more firms involved in the burgeoning industry of crypto-token sales. Although the SEC has previously signaled its intent to enforce federal securities laws in the ICO context with a series of public statements on the topic, notably a Report of Investigation in July 2017 (the “DAO Report”) – and, indeed, has already brought a number of cases involving ICOs – this step is significant and potentially far-reaching in that it expands the spotlight from ICO sponsors and token issuers to other industry facilitators, including “technology companies” and “advisers.” While this investigatory flurry may be driven in large part by the SEC’s interest in information gathering to better understand the market dynamics of ICO investment, policy analysts indicate that it is “highly likely” that these subpoenas will result in findings that some tokens have been issued and sold in violation of federal securities laws, raising the specter of an uptick in enforcement activity potentially impacting a wide range of industry participants.
According to CoinDesk, a leading news service for the blockchain and crypto asset community, monthly investment in ICOs experienced an exponential increase in the past year, culminating in over $3 billion in investment during the first two months of 2018 alone. Although the SEC has responded to this rapid pace of growth by launching a dedicated cyber unit within its Enforcement Division, such responsive measures are complicated by the fact that ICO structures are constantly evolving in ways that may or may not implicate federal securities laws in the first place. In other words, absent a regulatory scheme tailored to ICOs, the SEC continues to grapple with the predicate question of whether, and under what circumstances, crypto-tokens constitute securities subject to the agency’s jurisdiction.
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