In bigger crackdown of crypto abuses, SEC goes after unregistered coin offerings
19 November 2018 - 9:31PM
ADVFN Crypto NewsWire
The U.S. Securities and Exchange Commission in Washington, D.C.
- The Securities and Exchange Commission settled with two
cryptocurrency companies on Friday, the first civil penalties
solely for initial coin offering, or ICO, for registration
violations, and had its first enforcement action of an exchange
last week with EtherDelta.
- Brooklyn businessman Maksim Zaslavkiy pleaded guilty to
conspiracy to commit securities fraud in connection with two
ICOs.
- SEC Chairman Jay Clayton said earlier this year that all
cryptocurrencies aside from bitcoin and ether constitute securities
and "if it's a security, we're regulating it."
The Securities and Exchange Commission announced its first civil
penalties on Friday against crypto founders who failed to register
new coin offerings, part of a bigger regulatory and legal crackdown
aimed at abuses and outright fraud in the growing digital currency
industry.
The SEC said it settled separate cases with start-ups companies
Airfox and Paragon, which raised more than $10 million each in
initial coin offerings that weren't registered. They have agreed to
pay penalties, register their tokens as securities, file periodic
reports with the agency and return funds to any harmed investors,
according to the SEC.
The settlement comes a week after the agency notched another
"first," setting charges that a crypto firm called EtherDelta was
operating as an unregistered exchange.
The cases underscore the SEC's insistence that the relatively
new digital financial products must follow traditional securities
rules.
"We have made it clear that companies that issue securities
through ICOs are required to comply with existing statutes and
rules governing the registration of securities," Stephanie Avakian,
the SEC's co-director of enforcement, said in a statement. "These
cases tell those who are considering taking similar actions that we
continue to be on the lookout for violations of the federal
securities laws with respect to digital assets."
On Thursday, federal prosecutors in New York announced a guilty
plea by a man who defrauded investors with two cryptocurrencies he
founded during the initial coin offering boom.
Maksim Zaslavkiy, pleaded guilty to conspiracy to
commit securities fraud after raising money for two virtual
currencies known as "REcoin" and "Diamond." Zaslavskiy admitted to
tricking investors into buying the digital tokens by claiming they
were backed by real estate and diamonds.
In reality, the certificates he sent to investors were not
backed by blockchain technology. Zaslavskiy also had none of the
promised jewels or land to back those investments, according a
statement from the Department of Justice.
Thirty nine-year-old Zaslavkiy tried earlier this year to
dismiss the case against him by arguing that cryptocurrencies he
created were not securities for the purpose of criminal law. That
was shot down by a judge in Brooklyn
in September.
A key part of Zaslavkiy's argument at the time was that current
laws around crypto are "unconstitutionally vague." U.S. district
judge Raymond Dearie disagreed. The judge stopped short of defining
RECoin and Diamond as securities, but Dearie did say the jury
should be able to assess them using existing laws.
"The calculated lies of Zaslavskiy and others led unsuspecting
investors who thought they were purchasing cryptocurrency
securities to buy worthless certificates," United States Attorney
for the Eastern District of New York, Richard P. Donoghue said in a
statement. "This Office will continue to aggressively prosecute
those who exploit and defraud investors, whether through
traditional means of securities fraud, or new forms – such as the
use of purported cryptocurrency offerings and blockchain
technology."
ICO mania
In an ICO, coins or tokens are sold as a form of crowdfunding.
Instead of voting rights or dividends that come with shares of a
company, cryptocurrencies often promise access to a network,
platform or service. But they're often backed by an abstract idea
or nothing at all. That process has facilitated the rise of
joke-cryptocurrencies like Dogecoin, a Shiba Inu dog
meme-turned-cryptocurrency that has a passionate following on
Twitter and Reddit.
ICO fundraising brought in billions from retail investors last
year. In 2018 alone, companies have raised at least $9 billion
through initial coin offerings, according to estimates from
Autonomous Next. Many of those projects are backed by the promise
of a future product or technology platform, while some are backed
by nothing at all.
In June, SEC Chairman Jay Clayton made it clear that the agency
won't be updating the rules when it comes to defining this new
digital asset class. As of Tuesday, bitcoin and ether are the only cryptocurrencies the SEC has
explicitly said are exempt from Securities law.
Clayton has also said that all other initial coin offerings
constitute securities and "if it's a security, we're regulating
it."
"We are not going to do any violence to the traditional
definition of a security that has worked for a long time," Clayton
told CNBC earlier this year. "We've been doing this a long time,
there's no need to change the definition."
By
Kate Rooney |
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