By
Steve Muchoki
April 19th, 2024
Jay Clayton said that ICOs should willingly follow securities laws which ensure higher protection of customers’ funds while eliminating fraud and manipulation.
Chairman of the U.S. Securities and Exchange Commission (SEC) Jay Clayton has been recently quite vocal on Initial Coin Offerings (ICOs). While speaking at the Consensus Invest Conference, Clayton said:
“If you finance a venture with a token offering, you should start with the assumption that it is a security.”
Much recently, Clayton made a surprise statement talking about the advantages of ICO for fundraising. He stated:
“I believe that ICOs can be effective ways for entrepreneurs and others to raise capital.”
Clayton said this during his latest speech reviewing the progress of the agency for 2018. However, he adds a caveat to this saying that quality ICO projects shouldn’t shy away from following the securities laws.
“The novel technological nature of an ICO does not change the fundamental point that, when a security is being offered, our securities laws must be followed,” he said. Clayton also added that the entire SEC staff has “spent a significant amount of time” focusing on crypto assets and digital currencies. Furthermore, he expects this trend to continue even the next year.
“A number of concerns have been raised regarding the digital assets and ICO markets, including that, as they are currently operating, there is substantially less investor protection than in the traditional equities and fixed income markets, with correspondingly greater opportunities for fraud and manipulation,” Clayton added.
Concerns Surrounding the ICOs
Under the latest scenario, Clayton also pointed out a number of concerns surrounding the ICOs. He says that under the existing state, ICOs provide less investor protection in comparison to other fixed income markets and traditional equities. Consequently, they provide a higher opportunity for manipulation and fraud.
Last week itself, SEC’s co-director of the Division of Enforcement – Steven Peikin – said that international cooperation is required to fight fraudsters in the ICO market. Furthermore, the agency is cracking down heavily on influencers promoting ICOs without checking down their background.
In its recent exemplary step, the SEC charged famous personalities like the boxing heavyweight Floyd Mayweather Jr. and music producer DJ Khaled involved in promoting an ICO which turned out to be a fraud.
On November 30, Steven Peikin tweeted on behalf of the SEC warning social media influencers involved in ICO promotional activities. Peikin wrote:
“Investors should be skeptical of investment advice posted to social media platforms, and should not make decisions based on celebrity endorsements. Social media influencers are often paid promoters, not investment professionals, and the securities they’re touting, regardless of whether they are issued using traditional certificates or on the blockchain, could be frauds.”
During his latest speech, Clayton also talked about SEC’s recent launch of the FinHub division to tackle issues pertaining to ICOs. The FinHub is the agency’s Strategic Hub for Innovation and Financial Technology.
“As the FinHub and our other activities demonstrate, our door remains open to those who seek to innovate and raise capital in accordance with the law,” Clayton said.