An official with the U.S. Securities and Exchange Commission (SEC) has argued that many initial coin offerings (ICOs) are securities offerings in disguise, and that they could be putting investors money at risk.
Speaking at a conference in New York on ‘The Future of Financial Fraud,’ Valerie Szczepanik, SEC assistant director of enforcement and head of the agency’s working group on cryptocurrencies, said:
They’re raising a lot of money, but they’re not complying with the rules that are in place to protect investors.
During her speech Szczepanik didn’t single out any ICO; however, she did state that many are simply created to raise money for the company, providing investors with a platform to speculate. As a result, this is the definition of a security under law she said, reports CNBC.
Barry Silbert, CEO of Digital Currency Group, argued that the securities laws in place since the Great Depression may need to be updated in light of the growing interest in cryptocurrencies. He added:
Digital currency is here to stay. Money is becoming digital.
Silbert did concede, though, that ICOs are risky. For the SEC, however, this isn’t a case of quashing the innovative industry as it does hold potential. The promise of the blockchain is something that can’t be ignored Szczepanik said, which is why the agency doesn’t want to chill the market.
When it comes to defining what ICOs are, the SEC has said that they are securities, whereas, the U.S. Commodity Futures Trading Commission (CFTC) has defined them as commodities. Yet, according to the CEO of Overstock.com, ICOs should be rebanded as STOs, or Security Token Offerings, to provider greater clarity to regulators. Speaking late last month, Patrick Byrne said:
It’s the new term. The industry is distinguishing very clearly now between ICOs and STOs.
By relabelling them as STOs it also means that issuers are being upfront and know that what they are trading is in fact a security.
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