US Securities and Exchange Commission (SEC) chairperson Jay Clayton has claimed that the market for initial coin offerings (ICO) is very opaque and susceptible to price manipulation. He further stated that the digital tokens issued for startup or open-source project fundraising are already ripe for misconduct.

In his speech at the Practicing Law Institute’s Institute on Securities Regulation seminar held in New York in early November 2017, Clayton said that the digital tokens can be compared to penny stocks and hidden fees on investment products.

"Investors often do not appreciate that ICO insiders and management have access to immediate liquidity, as do larger investors, who may purchase tokens at favorable prices. Trading of tokens on these platforms is susceptible to price manipulation and other fraudulent trading practices."

Other highlights of Clayton’s speech

In his speech, Clayton also detailed the SEC’s findings from its investigation of the collapse of the Ethereum-based funding platform DAO to the seminar attendees. He highlighted the need for the digital currency exchanges to be either registered or secure an exemption from the appropriate agencies to operate properly.

He claimed that the penny stocks and ICOs were proven over time to be a fertile ground for fraudulent activities that victimize unsuspecting investors. He further stated that an appropriate policy is needed to resolve these issues.

He also announced that the agency is continuously working with investors and industry players in order to create strategies to fight the opacity in ICO trading and protect the integrity of the market and its investors.

"The SEC may not yet have policy or rulemaking answers in these areas, but we are on the lookout for ways to fight the type of opacity that can create an environment conducive to misconduct."