Regulator tells lawyers told to get off the fence or face unpleasant fall
In remarks delivered at the Securities Regulation Institute, SEC Chair Jay Clayton said “I doubt anyone in this audience thinks it would be acceptable for a public company with no meaningful track record in pursuing the commercialization of distributed ledger or blockchain technology to (1) start to dabble in blockchain activities, (2) change its name to something like “Blockchain-R-Us,” and (3) immediately offer securities, without providing adequate disclosure to Main Street investors about those changes and the risks involved.”
Those words were a reference to the likes of Stapleton Capital, Long Island Iced Tea and UK company On-Line, all of which added a bit of Blockchain to their names and saw their share prices soar.
The next company to ponder such a change may have to think again, as Clayton said “The SEC is looking closely at the disclosures of public companies that shift their business models to capitalize on the perceived promise of distributed ledger technology and whether the disclosures comply with the securities laws, particularly in the case of an offering.”
Clayton also had some choice words for professionals advising cryptocurrency concerns.
“My … message is simple and a bit stern,” he said. “Market professionals, especially gatekeepers, need to act responsibly and hold themselves to high standards. To be blunt, from what I have seen recently, particularly in the initial coin offering (“ICO”) space, they can do better.”
The chair said he’s seen “initial coin offerings (ICOs) where the lawyers involved appear to be, on the one hand, assisting promoters in structuring offerings of products that have many of the key features of a securities offering, but call it an ‘ICO,’ which sounds pretty close to an ‘IPO’.” An IPO must follow many government regulations, while ICOs scoff at such niceties. Clayton said he’s seen lawyers equivocate about whether an ICO is really an IPO, because the client doesn’t mind the risk that their ICO could be pinged.
Clayton gave such operators a warning: “I have instructed the SEC staff to be on high alert for approaches to ICOs that may be contrary to the spirit of our securities laws and the professional obligations of the U.S. securities bar,” he said.
The SEC’s previously issued similarly-sternly-worded guidance to crypto speculators and binned an ICO for restaurant app Munchee. The US Commodity Futures Trading Commission (CFTC) has also acted, filing fraud charges against companies it feels ripped off hot-to-trot crypto investors. ®