US SEC Places Ball in Investors' Court

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US SEC Places Ball in Investors' Court

Addressing the massive hype around cryptocurrencies, blockchain and ICOs, Clayton offered his "general views" on the current state of affairs in the market. "A change in the structure of a securities offering does not change the fundamental point that when a security is being offered, our securities laws must be followed", he added.

"Investors would have had a reasonable belief that their investment in tokens could generate a return on their investment", the SEC said in a statement.

"A number of concerns have been raised regarding the cryptocurrency and ICO markets, including that, as they are now operating, there is substantially less investor protection than in our traditional securities markets, with correspondingly greater opportunities for fraud and manipulation", Clayton added.

Although Clayton doesn't outright condemn ICOs, he raises concerns about the dubious nature in which some projects manage their funding, all the while recognizing that he believes that ICOs "can be effective ways for entrepreneurs and others to raise funding, including for innovative projects".

"Investors should understand that to date no initial coin offerings have been registered with the SEC", Clayton said.

In a 2,300-word statement on Monday, SEC chairman Jay Clayton said that his agency was warily watching the spike in interest, which has led bitcoin to rise to more than $17,000 as of Monday afternoon. South Korea has simply banned ICOs, noting in September that "stern penalties" would be levied on anyone issuing one.

Coin offerings often receive investments in the form of cryptocurrency like Bitcoin, which has soared to meteoric heights.

"On November 1, 2017, Munchee stopped selling MUN tokens hours after being contacted by Commission staff", wrote the SEC. The company communicated through its website, a white paper, and other means that it would use the proceeds to create the ecosystem, including eventually paying users in tokens for writing food reviews and selling both advertising to restaurants and "in-app" purchases to app users in exchange for tokens. The company also emphasized it would take steps to create and support a secondary market for the tokens. "A token can be a security based on the long-standing facts and circumstances test that includes assessing whether investors' profits are to be derived from the managerial and entrepreneurial efforts of others", it said. In July, the SEC issued a similar statement urging caution toward participants in ICOs and noted that tokens that had been offered by The DAO, an organization that raised $150 million in an ICO, were securities, though it did not pursue any charges or make findings of violations.

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