SEC Director of Enforcement: “Substantial Remedies” on fraudulent ICOs
Stephanie Avakian, co-director of enforcement at the U.S. Securities and Exchange Commission (SEC) in a speech in Dallas, Texas on Thursday mentioned the regulator's concern regarding initial coin offerings (ICOs). She said that “substantial remedies” will be enforced on those who fail to meet the registration standards for ICOs.
The speech, entitled “Measuring the Impact of the SEC’s Enforcement Program” as posted on the SEC website, prioritized a substantial segment for “ICOs and Digital Assets.” Avakian mentioned three reasons that ICOs can be classified as “high-risk investments” - lack of established records of the issuers, inability to safeguard digital assets from cybercriminals and the fact that some offerings may be completely fraudulent.
However, Avakian acknowledged that technology plays an important role in capital formation and it is not the motive of the SEC “to stifle the legitimate use of technology and innovation to facilitate capital formation”. She further stated, “anyone who seeks to do so must do it in compliance with the federal securities laws.”
The director aims to balance the interests of the issuers while making sure that they comply with the required norms. Avakian identifies the “novelty of the ICOs” but understands if allowed an unchecked leeway, the investors will be victims of fraudulent issues. The agency’s goal is to provide enough room for ICOs to operate but make sure that the legal requirements are in place to protect the investors.
Avakian’s speech indicates that the SEC is duly concerned about the illicit uses of raising funds for crypto-projects through such means. Last year, the SEC issued a report which stated that security laws applied to the offers and sales of virtual tokens via blockchain. The report confirmed the SEC’s position on digital tokens, according to which such coins are investment contracts.
Avakian's speech underlined the need for financial and technological innovations to facilitate modern capital formation, a key area of focus for the SEC. However, the regulator recognizes the need to enforce rules to keep issuers on their toes and ensure that the proceedings are carried out in accordance with legal precedents, thereby protecting investors.
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