SEC Brings Enforcement Actions Against Promoters of Initial Coin Offerings

by Hirschfeld Kraemer LLP
Contact

Hirschfeld Kraemer LLP

Throughout the latter half of 2017, the SEC became increasingly focused on regulating securities law violations involving blockchain technology and initial coin offerings. A blockchain is an electronic distributed ledger maintained and broadcast by a network of computers utilizing cryptology to process and verify transactions such that all computers in the network have the same ledger.

Initial coin offerings are being used by companies to raise funds for projects by issuing virtual or digital cryptocurrencies, such as bitcoins or ethereum. Although ICOs have differed in structure, they typically involve the issuance of coins or tokens which can be exchanged for products or services from the issuing company. The SEC has become concerned about the potential for abuse in these offerings. On July 25, 2017, the SEC issued an investigative report warning market participants that sales of digital assets such as ICOs or token sales by virtual organizations may be subject to the federal securities laws as investment contracts under the Howey test. On September 25, 2017, the SEC announced two initiatives to help address cyber-based threats and to protect retail investors. The Cyber Unit focuses the Enforcement Division’s cyber-related expertise on such misconduct as market manipulation schemes involving false information disseminated through social media; hacking to obtain inside information; violations with respect to distributed ledger technology and ICOs; and unauthorized access to retail brokerage accounts. The Retail Strategy Task Force is developing initiatives aimed at identifying misconduct involving retail investors.

On December 1, 2017, the Cyber Unit filed an enforcement action against the promoters of an ICO for the “PlexCoin” proposed currency. The SEC charged the promoters with fraud, alleging that they had no intention of developing a currency and instead were using the funds that were raised for personal enrichment. The promoters were also charged with violating the federal securities laws by engaging in an unregistered offering in violation of the registration requirements of the Securities Act of 1933.

On December 11, 2017, the Cyber Unit entered into an offer of settlement with Munchee Inc., a California business that was offering Munchee tokens that would be used to improve its iPhone application, to pay users for food reviews and to sell advertisements to restaurants. In the settlement, Munchee agreed to stop offering and selling the tokens in violation of the registration requirements of the Securities Act of 1933.

The SEC has also issued a public statement that warned celebrities who promote ICOs that involve securities that they must disclose the nature, scope and amount of compensation received in exchange for the promotion. The SEC views the failure to do so to be a violation of the anti-touting provisions of the federal securities laws, presumably referring to Section 17(b) of the Securities Act of 1933.

The SEC is not the only federal agency concerned about ICOs. For instance, on October 17, 2017, the Commodity Futures Trading Commission LabCFTC Office issued a CFTC Primer on Virtual Currencies indicating that certain ICOs may be subject to CFTC jurisdiction. The CFTC has also released a customer advisory about the risks of virtual currency trading, issued a proposed interpretation of the term “actual delivery” in the context of virtual currencies under the Commodity Exchange Act, and established a virtual currency resource Web page.

DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

© Hirschfeld Kraemer LLP | Attorney Advertising

Written by:

Hirschfeld Kraemer LLP
Contact
more
less

Hirschfeld Kraemer LLP on:

Readers' Choice 2017
Reporters on Deadline

"My best business intelligence, in one easy email…"

Your first step to building a free, personalized, morning email brief covering pertinent authors and topics on JD Supra:
Sign up using*

Already signed up? Log in here

*By using the service, you signify your acceptance of JD Supra's Privacy Policy.
Custom Email Digest
Privacy Policy (Updated: October 8, 2015):
hide

JD Supra provides users with access to its legal industry publishing services (the "Service") through its website (the "Website") as well as through other sources. Our policies with regard to data collection and use of personal information of users of the Service, regardless of the manner in which users access the Service, and visitors to the Website are set forth in this statement ("Policy"). By using the Service, you signify your acceptance of this Policy.

Information Collection and Use by JD Supra

JD Supra collects users' names, companies, titles, e-mail address and industry. JD Supra also tracks the pages that users visit, logs IP addresses and aggregates non-personally identifiable user data and browser type. This data is gathered using cookies and other technologies.

The information and data collected is used to authenticate users and to send notifications relating to the Service, including email alerts to which users have subscribed; to manage the Service and Website, to improve the Service and to customize the user's experience. This information is also provided to the authors of the content to give them insight into their readership and help them to improve their content, so that it is most useful for our users.

JD Supra does not sell, rent or otherwise provide your details to third parties, other than to the authors of the content on JD Supra.

If you prefer not to enable cookies, you may change your browser settings to disable cookies; however, please note that rejecting cookies while visiting the Website may result in certain parts of the Website not operating correctly or as efficiently as if cookies were allowed.

Email Choice/Opt-out

Users who opt in to receive emails may choose to no longer receive e-mail updates and newsletters by selecting the "opt-out of future email" option in the email they receive from JD Supra or in their JD Supra account management screen.

Security

JD Supra takes reasonable precautions to insure that user information is kept private. We restrict access to user information to those individuals who reasonably need access to perform their job functions, such as our third party email service, customer service personnel and technical staff. However, please note that no method of transmitting or storing data is completely secure and we cannot guarantee the security of user information. Unauthorized entry or use, hardware or software failure, and other factors may compromise the security of user information at any time.

If you have reason to believe that your interaction with us is no longer secure, you must immediately notify us of the problem by contacting us at info@jdsupra.com. In the unlikely event that we believe that the security of your user information in our possession or control may have been compromised, we may seek to notify you of that development and, if so, will endeavor to do so as promptly as practicable under the circumstances.

Sharing and Disclosure of Information JD Supra Collects

Except as otherwise described in this privacy statement, JD Supra will not disclose personal information to any third party unless we believe that disclosure is necessary to: (1) comply with applicable laws; (2) respond to governmental inquiries or requests; (3) comply with valid legal process; (4) protect the rights, privacy, safety or property of JD Supra, users of the Service, Website visitors or the public; (5) permit us to pursue available remedies or limit the damages that we may sustain; and (6) enforce our Terms & Conditions of Use.

In the event there is a change in the corporate structure of JD Supra such as, but not limited to, merger, consolidation, sale, liquidation or transfer of substantial assets, JD Supra may, in its sole discretion, transfer, sell or assign information collected on and through the Service to one or more affiliated or unaffiliated third parties.

Links to Other Websites

This Website and the Service may contain links to other websites. The operator of such other websites may collect information about you, including through cookies or other technologies. If you are using the Service through the Website and link to another site, you will leave the Website and this Policy will not apply to your use of and activity on those other sites. We encourage you to read the legal notices posted on those sites, including their privacy policies. We shall have no responsibility or liability for your visitation to, and the data collection and use practices of, such other sites. This Policy applies solely to the information collected in connection with your use of this Website and does not apply to any practices conducted offline or in connection with any other websites.

Changes in Our Privacy Policy

We reserve the right to change this Policy at any time. Please refer to the date at the top of this page to determine when this Policy was last revised. Any changes to our privacy policy will become effective upon posting of the revised policy on the Website. By continuing to use the Service or Website following such changes, you will be deemed to have agreed to such changes. If you do not agree with the terms of this Policy, as it may be amended from time to time, in whole or part, please do not continue using the Service or the Website.

Contacting JD Supra

If you have any questions about this privacy statement, the practices of this site, your dealings with this Web site, or if you would like to change any of the information you have provided to us, please contact us at: info@jdsupra.com.

- hide
*With LinkedIn, you don't need to create a separate login to manage your free JD Supra account, and we can make suggestions based on your needs and interests. We will not post anything on LinkedIn in your name. Or, sign up using your email address.