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SEC To Investigate The Cryptocurrency Market – Subpoenas Hit ICO Supporters

A big crackdown is underway, led by the Securities and Exchange Commission against fraudulent initial coin offerings, according to The Wall Street Journal . U.S. regulators have sent “scores of subpoenas” to firms they suspect might be violating securities laws by milking the digital currency market craze.

A spokesman for the SEC declined to comment to the Journal, but sources told the media outlet that the agency is looking into the structuring of initial coin offerings, which are not as heavily regulated as public offerings.

In ICOs, a company sells digital tokens that can be eventually redeemed for goods and services. The market has been red hot, with firms raising about $8.7 billion, according to CoinDesk, which tracks the offerings. The SEC is worried that in many cases, small investors, aren’t adequately researching the risks involved.

The SEC has already brought a number of cases involving ICOs, including one in January against a Texas-based offering that claimed to have raised $600 million using former boxing champ Evander Holyfield as a celebrity endorser. The agency said the company involved, AriseBank, illegally raised money from investors without registering the offering with regulators.

The news comes as high demand for bitcoin and other digital currencies has sent their valuations into wild gyrations. Concerns about regulatory crackdowns recently sent the market cap of bitcoin spiraling from a mid-December record high above $19,000. The digital currency hit a low below $6,000 — its lowest since November — before recovering.

Concerns have arisen that some ICOs are raising money for businesses that don’t even exist. The subpoenas are being coordinated with the SEC Enforcement Division’s cyber unit, which was created last year. The Wall Street Journal earlier reported that the SEC had issued subpoenas.

Today’s initial coin offerings make the cryptocurrency realm very much like the wild west, Marina Niessner, an assistant professor of finance at Yale School of Management, said in an earlier interview. But eventually, the lawless phase will end, she predicted.

“My guess is a lot of the cryptocurrency stuff is probably going to go away,” she said. Blockchain, though, which can be applied more broadly to business transactions and data-handling technology, “is probably here to say. It’ll streamline a lot of finance.”

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