The Securities and Exchange Commission (SEC) has launched a fresh formal investigation in the cryptocurrency market, as reported by the Wall Street Journal. The agency is likely opting for its largest probe into the digital currency industry. Dozens of subpoenas information requests have been issued to advisers and companies active in the crypto market.
Most of the subpoenas are targeted towards initial coin offerings (ICOs). The regulator wants to understand the structure of these sales. In fact, the SEC has rung the bell for ICOs several times in the past year.
Numerous startups have avoided traditional investment options and IPOs to get ICOs for their businesses. This activity has generated billions, if not more, in financing in the past 12 months alone. They have used Ethereum blockchain based assets to create ‘utility tokens’ that circumvent the current regulations without being targeted as cryptocurrencies.
According to current regulations, cryptocurrencies do not fall under the jurisdiction or governance of the SEC or even the Commodity Futures Trading Commission (CFTC). Crypto exchanges are outside the purview of any federal bodies but remain licensed and regulated by the states.
The federal agencies are still unclear about how to govern or license these trades. Note that the ICO funding model is very popular and it is not yet bound by any rules that govern IPOs.
The Wall Street Journal reports that despite repeated warnings from the regulators, investors have not deterred from investing in ICOs. As Token Report data suggests, ICOs work like crowdfunding and they have already raised $1.7 billion this year. This year’s numbers will easily tackle and defeat last year’s total.
Jay Clayton, SEC Chair, mentioned that the agency is looking closely at the digital currency space in a Senate panel meeting in early February. However, Clayton didn’t suggest if the SEC will make new laws for the digital currencies or consider a ban. He expressed concerns over the SEC’s current framework being inadequate to handle this new digital asset class.
In his testimony, Clayton said, “[W]e are open to exploring with Congress, as well as with our federal and state colleagues, whether increased federal regulation of cryptocurrency trading platforms is necessary or appropriate. We also are supportive of regulatory and policy efforts to bring clarity and fairness to this space.”
In the wake of these events, companies continue to raise capital through ICOs and other crypto-related methods. A popular messaging app Telegram is rumored to host an ICO soon. It has already generated $850 million through private sales, as mentioned in its SEC filings. More private sales and a public sale could help raise $2 billion for the company.
ICOs have come under the scanner of governments and regulatory bodies as many of them were victims of frauds and scams recently. Cyber criminals could easily steal these tokens, as is evident from the recent leaks. In fact, an Ernst & Young report suggests that over 10% of ICO funds have been stolen in last year alone. The SEC has not cleared whether it will restrict or ban ICOs like China yet.