Based on how 2017 ended, entities and individuals in the crypto-currency markets should expect increased scrutiny from the United States Securities and Exchange Commission (“SEC”) in 2018. The SEC’s Cyber Unit commenced its first action on December 1, 2017, filing a complaint against defendants PlexCorps and individuals Dominic Lacroix and Sabrina Paradis-Royer. The SEC’s suit was an emergency stop action, seeking to prevent the Defendants from “further misappropriating investor funds illegally raised through the fraudulent and unregistered offer and sale of securities” called “PlexCoin” or “PlexCoin Tokens” in a purported “Initial Coin Offering” or “ICO.” On Monday, December 4, 2017, the SEC announced that it successfully obtained an emergency asset freeze to halt the defendants’ ICO.
An ICO, according to Investopedia, is “[a]n unregulated means by which funds are raised for a new cryptocurrency venture” and which “is used by startups to bypass the rigorous and regulated capital-raising process required by venture capitalists or banks.”
The Cyber Unit was announced on September 25, 2017, as a new initiative to “build on [the SEC’s] Enforcement Division’s ongoing efforts to address cyber-based threats and protect retail investors.” The Cyber Unit was created to “focus on targeting cyber-related misconduct and the establishment of a retail strategy task force that will implement initiatives that directly affect retail investors…”
The Cyber Unit’s first complaint and emergency asset freeze came less than three months into its existence. But the SEC has, for months before the Cyber Unit’s creation, expressed a concern with ICOs, taking the position that the virtual coins, or tokens, that are offered in an ICO may, “depending on the facts of circumstances” of the ICO, be securities that are “subject to the federal securities laws.” The Cyber Unit’s first action coincides with a surge in cryptocurrency’s acceptance.
Later in December, the SEC suspended trading in shares of The Crypto Co., a California digital currency-oriented tech firm that had seen a major stock price surge in the previous month. The reason given for the suspension was the SEC’s “concerns regarding the accuracy and adequacy of information in the marketplace…” Considering this industry is in its infancy and dramatic stock swings appear to be commonplace, it would not be surprising to see similar actions taken by the SEC in the coming year.
Given the Cyber Unit’s first action against PlexCorp, and the suspension of trading for The Crypto Co., it seems obvious that ICO and cryptocurrency in general can no longer be considered “unregulated.”