ICOs come under fire as regulatory threat deepens

June 20, 2018
Chris Wheal

The Securities and Exchange Commission (SEC) has tiptoed around the issue of cryptocurrencies: bitcoin and ethereum, it says, are not securities and do not fall under its regulatory scrutiny. Initial coin offerings (ICOs), however, are a different matter and a number of high-profile crypto-watchers are beginning to get worried.

John McAfee, the anti-virus software producer and crypto-enthusiast, is among them.

Crypto-enthusiast John McAfee: Pic by Flickr Gage Skidmore

He Tweeted on Tuesday that he would no longer participate in or promote ICOs due to the SEC’s increasingly critical stance on the fundraising technique for new crypto and blockchain enterprises.

SEC threats

In his tweet, McAfee said: “Due to SEC threats, I am no longer working with ICOs nor am I recommending them, and those doing ICOs can all look forward to arrest. It is unjust but it is reality.”

McAfee has previously revealed that he earns $105,000 for each tweet he publishes to promote crypto projects.

In an unprintable rant on Twitter at the beginning of June McAfee demanded a debate with Jay Clayton, the chairman of the SEC, so he could “show the ***** what the crypto community was all about”.

Meanwhile, Chicago Board Options Exchange president Chris Concannon believes McAfee – and others – are right to be concerned about the regulatory threat.

Regulatory reckoning

In an article in Business Insider, published on Wednesday, Concannon said the ICO market was about witness a two-part “regulatory reckoning” that should have crypto investors “lying awake at night”.

The first wave involves the SEC going after unregistered ICO market participants, he said, to be followed by a second wave of class-action lawsuits against the teams behind ICO projects.

As far as the SEC is concerned, some ICOs qualify as securities and must be registered with the regulatory body. Jay Clayton stated in December: “Tokens and offerings that feature and market the potential for profits based on the entrepreneurial or managerial efforts of others contain the hallmarks of a security under US law.”

ICO market too uncertain

Concannon said this creates too high a level of uncertainty for participants and that if someone offered an unregistered coin, trouble could follow.

He told Business Insider: “If you sold someone an unregistered security you are liable to them if they decide to take them to court.”

With increasing numbers of scam or fraudulent ICOs hitting the headlines, it becomes conceivable that if a genuine, but unregistered ICO were to fail or underperform then class action lawsuits could follow.

In May, the SEC launched a website promoting a fake ICO to help increase awareness of what scammers are trying to do.

Post written by Chris Wheal
Chris Wheal is editor of OpenLedger's news and features service. An award-wining business journalists himself, he runs a team of freelance journalists from across the UK and north America.

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