SEC intensifies its cryptocurrency fundraising investigation

The organization has issued subpoenas to tech companies.

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Swapna Krishna
March 1, 2018 12:19 PM
In this article: bitcoin, business, cryptocurrency, SEC
Dado Ruvic / Reuters
Dado Ruvic / Reuters

In January, the SEC warned that it was "looking closely" at companies that are involved in cryptocurrency (and using associated terms to boost stock). But now, it appears that the regulatory organization is doing more than just keeping an eye on things. According to The Wall Street Journal, the SEC has issued dozens of subpoenas and requests for information about cryptocurrency activities to both tech companies and their advisers.

The concern here is that ICOs (initial coin offerings), or token sales, may actually be in violation of securities laws. The SEC is specifically looking into the sale structure of these offerings, which aren't necessarily subject to the rules surrounding IPOs. It's because of this that there's a history of fraud with token sales -- they often are offered to support startups that have no real products or proven tech.

ICOs have already raised $1.6 billion in 2018. That kind of money is bound to bring scrutiny along with it. The SEC is specifically focused on agreements that allow rich investors to buy tokens ahead of a public sale. These rights can, in turn, be traded or sold for profit before the ICO even occurs. The SEC's issue here is that these rights are being traded and sold like securities without being subject to any kind of rules.

It will be interesting to see how much the SEC steps in to regulate cryptocurrency and where this probe leads. After all, anything that is treated like a security, even if it's named something different, is within the purview of the SEC.

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SEC intensifies its cryptocurrency fundraising investigation