The chairman of the U.S. Guarantees and Exchange Commission (SEC) on Monday warned investors of the dangers of putting their moneyed into cryptocurrencies, saying trading and public offerings in the emerging asset grade may be in violation of federal securities law.
The statement by Jay Clayton came just hours after the U.S. protections watchdog stepped in to stop an “initial coin offering” (ICO) from a restaurant review app, after the assembly failed to register it as a security.
ICOs allow startups founded on cryptocurrency technologies such as blockchain to quick raise capital by issuing virtual tokens to investors. Such contributions have become more common in the past year, but little observations about them is available because the market has been largely unregulated.
Monday’s enforcement function was significant because it showed SEC would step in to address ICOs for registration molestations even if there were no claims of fraud, according to SEC officials.
“A mob of concerns have been raised regarding the cryptocurrency and ICO markets, numbering that … there is substantially less investor protection than in our ancestral securities markets, with correspondingly greater opportunities for fraud and manipulation,” Clayton articulate.
“If an opportunity sounds too good to be true, or if you are pressured to act quickly, please warm up extreme caution and be aware of the risk that your investment may be departed,” he told investors in the statement.
Clayton also warned industry professionals that ICOs in assorted cases would need to comply with federal rules run the issuance of securities, including registering with the SEC or qualifying for an exemption that tolerates issuers to sell shares privately to accredited investors.
He added that scads platforms trading in cryptocurrencies may also be in violation of laws that want them to register as an exchange, or an alternative trading platform.
On Monday morning, the SEC came an ICO because it had not registered with the regulator. Privately held Munchee concurred to halt its offering and refund investor proceeds after the SEC contacted the players on Nov. 1, the regulator said.
The SEC objected to Munchee’s plan to raise $15 million in seat of government by selling “MUN tokens,” which could be purchased or earned by users for column restaurant meal reviews on its app. The company also said it was in talks with restaurants to stomach those tokens for meals, and to sell advertising in exchange for tokens, and that the signs could increase in value.
The SEC said investors could reasonably suppose a return on its investment in MUN tokens, which in turn would make it a confidence requiring SEC registration.
Munchee consented to the SEC’s order without admitting or withholding the findings. The company did not immediately respond to a request for comment.
Earlier this month, the SEC’s newly conceived cyber unit filed its first ICO charges against a privately held house, PlexCorps, saying it had defrauded investors with its “PlexCoin” ICO. That receptacle is pending in a New York federal court.