SEC Issues Stern Warning on Initial Coin Offerings and Cryptocurrency Derivatives

Michael Rasor

You’ve heard of IPOs. The wave of the future might be ICOs (initial coin offerings). Their issuances have surpassed $4 Billion. But the SEC is urging the industry to pump the brakes.

Startup Cryptocurrency Regulated as a Security

Last week, SEC Chairman Jay Clayton released a letter that strongly suggests that, by issuing a digital coin in exchange for cash, a startup cryptocurrency is issuing an investment contract, which is regulated as a “security” under the Securities Exchange Act. The letter goes on to state that the Division of Enforcement will be vigorously policing ICO’s and cryptocurrency derivatives.

Ask Before Investing

Of value for investors, the letter provides a list of questions to ask before investing, such as “Is my money going to be used to ‘cash out” others?” and “How and when do I have the right to sell my coin back?” and “Is the blockchain used open and public?”

Read the entire letter from Chairman Clayton here: https://www.sec.gov/news/public-statement/statement-clayton-2017-12-11

The Wall Street Journal opined on the subject over the weekend. “Initial Coin Offerings Surge Past $4 Billion—and Regulators are Worried,” https://www.wsj.com/articles/initial-coin-offerings-surge-past-4-billionand-regulators-are-worried-1513235196

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