SEC Indicate Digital Coin Offerings Subject To Securities Law

The U.S. Securities and Exchange Commission (SEC) has determined that the country's securities regulations would be applicable in case of initial coin offerings (ICO) which is a form of new digital coins issuance.

The agency said in a statement that companies using such a sale of digital assets to raise money were required to adhere to federal securities laws.

According to the SEC, the ICO issues must register the offer with the necessary government authorities. It added that exchanges offering trading of virtual currencies like bitcoin and ether would also come under its purview.

In a statement Stephanie Avakian, the co-director of the SEC's enforcement division said

The innovative technology behind these virtual transactions does not exempt securities offerings and trading platforms from the regulatory framework designed to protect investors and the integrity of the markets

In recent times, several startup firms have raised millions of dollars selling tokens for such sales without involving the SEC. This year alone tech firms dealing with virtual currencies have raised around $1.1 billion through 89 coin sales, up by nearly 10 times over last year as per data from crypto-currency research firm Smith + Crown. There are a reported 110 ICOs that are scheduled for the rest of the year according to a website tracking token salestokendat.io.

The commission’s observations come after its investigation into the hacked DAO token sale of the digital currency ethereum. The sale raised $150 million over a period of four weeks. The agency had been tasked with reviewing if the DAO token sales were violating federal securities laws by having unregistered and unregulated offers for the tokens in exchange for Ether currency.

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Although the SEC has decided not to bring charges in the DAO case, in its report it has warned the digital currency industry and its market participants that federal securities laws are applicable in all cases involving offer and sale of securities regardless of whether it is by a traditional company or a decentralized entity.

SEC Chairman Jay Clayton stated that the agency encouraged innovative ways to raise capital, but the first priority was protecting the markets and investors. Industry experts have said that the decision could have wide ranging repercussions on the market.

Angela Walch, associate professor at St. Mary’s University School of Law stated that this was the first time that the SEC was addressing the issue of digital currencies and how their exchanges fitted into the overall financial system. It was also a reminder that regular consumer protection laws were applicable in the purely digital world as well.

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