U.S. federal securities law may potentially be violated by trading and the public offerings of cryptocurrencies, warned the chairman of the U.S. Securities and Exchange Commission (SEC) and added that the it would be potentially dangerous to put money into the new asset class.
It was just a few hours ago to the chairman’s comments that the SEC had prevented an ‘initial coin offering’ by a restaurant review app as t the company in question did not manage to register the offering as a security.
Issuance of heh virtual coins to investors is the main act in an ICO and this act enables star ups that have been formed on the basis of cryptocurrency technologies such as blockchain to raise money fast. But since the cryptocurrency market has largely remained unregulated, therefore there is very little available data about the cryptocurrencies and the ICOs despite the fact that such ICOs have been rampant and commonplace occurrence in the last one year.
“A number of concerns have been raised regarding the cryptocurrency and ICO markets, including that … there is substantially less investor protection than in our traditional securities markets, with correspondingly greater opportunities for fraud and manipulation,” Clayton said.
“If an opportunity sounds too good to be true, or if you are pressured to act quickly, please exercise extreme caution and be aware of the risk that your investment may be lost,” he told investors in the statement.
Compliance with federal rules that are aimed at regulating the issuing of securities like getting registered for an ICO with the SEC or getting qualified for an exemption which would allow the issuing company to make private selling of shares to qualified investors would be applicable to the ICOs under many circumstances, Clayton said aiming to target the industry professionals.
Those platforms that trade in cryptocurrencies also need to get registered as an exchange or an alternative trading platform, failing which such platforms run the risk of being declared illegal, he added.
It was only last Monday that an ICO was stopped by the SEC on the grounds that it had not got itself registered with the regulator. Eh regulator said that Munchee, a private firm, had stopped the ICO and agreed to reimburse the investors after it was contacted by thee SEC.
The offering to people by Munchee was purchasing or earning of ‘MUN tokens’ by users through posting and writing reviews on restaurant meals on an app. Through this process, the company intended to raise about $15 million in capital. this was objected to by the SEC.
(Adapted from Fortune.com)