SEC On High Alert for Initial Coin Offerings (ICOs)
SEC Chairman Jay Clayton thinks that securities attorneys have checked out when it comes to ICOs. In a speech he gave on Monday, Clayton said it was disturbing that lawyers were assisting promoters in structuring products that look like securities while basically signaling to those promoters that they can roam free without any compliance with the laws.
And lawyers who refuse to tell their clients the hard truth are just as troublesome, he says.
Second are ICOs where the lawyers appear to have taken a step back from the key issues – including whether the “coin” is a security and whether the offering qualifies for an exemption from registration – even in circumstances where registration would likely be warranted. These lawyers appear to provide the “it depends” equivocal advice, rather than counseling their clients that the product they are promoting likely is a security. Their clients then proceed with the ICO without complying with the securities laws because those clients are willing to take the risk.
“I have instructed the SEC staff to be on high alert for approaches to ICOs that may be contrary to the spirit of our securities laws and the professional obligations of the U.S. securities bar,” Clayton said.
He further said that the agency is undertaking efforts to teach the public that unregistered securities investments offered by unregistered companies with no securities lawyers is “dangerous.”
Companies successfully raised more than $3 billion through ICOs in 2017. As of October of last year, ICOs had generated an average return of 1,320% for investors.
ICO evangelist Ian Balina, for example, whom deBanked interviewed for an ICO story last fall, made $4.1 million in less than 12 months.