On May 22, at a conference of the Financial Industry Regulatory Authority (“FINRA”), U.S. Securities and Exchange Commission (“SEC” or the “Agency”) Chairman Jay Clayton urged digital token issuers to contact the SEC to look into whether their initial coin offerings (“ICO”) are subject to regulation by the Agency.

Since Chairman Clayton undertook his leadership role at the SEC, the Agency has given particular attention to cryptocurrencies and has released several warnings on the topic through statements, an investigative report, and bulletins. According to the Chairman, ICOs should be registered with the SEC and meet certain disclosure regulations. Chairman Clayton articulated at the recent FINRA conference, and in several other instances in his role as Chairman, that he believes the sale of cryptocurrencies triggers these requirements because it represents the sale of a security intended to create a profit for the purchaser. Accordingly, Chairman Clayton indicated that preemptively approaching the SEC prior to a company’s ICO is the best method for ensuring compliance with any applicable SEC guidelines for issuing securities.

In his recent remarks, Chairman Clayton also recollected that a key observation from his first year as Chairman was related to the number of ICOs and the volume of ICO issuers that sought to sell cryptocurrencies without registering them with the SEC. According to the Chairman, this could allow those companies to raise substantial funds without providing the protections to investors that typically accompany an SEC registration.

Unless there is more clarity on cryptocurrency offerings provided by Congress or a guiding court decision, Chairman Clayton stated that the SEC plans to handle ICOs on an individual basis, looking to the particular “facts and circumstances” to determine whether each is subject to SEC regulation.