Today the US Securities and Exchange Commission (SEC) issued a press release about their creation of a dedicated “Cyber Unit.” Among other things, this unit will exercise some oversight over digital currencies.
The SEC stated:
The Cyber Unit will focus the Enforcement Division’s substantial cyber-related expertise on targeting cyber-related misconduct, such as:
- Market manipulation schemes involving false information spread through electronic and social media
- Hacking to obtain material nonpublic information
- Violations involving distributed ledger technology and initial coin offerings
- Misconduct perpetrated using the dark web
- Intrusions into retail brokerage accounts
- Cyber-related threats to trading platforms and other critical market infrastructure
The new Cyber Unit will clearly have significant authority if all these are to fall under its purview. The third bullet point is most relevant to the cryptocurrency markets. The SEC is officially taking on the role of policing both ICOs and the “distributed ledger technology” sector.
Simply giving oneself enforcement power over “distributed ledger technology” seems overly broad. Depending on how the SEC (and perhaps the courts) define this term, the SEC could have wide latitude to investigate users of digital currencies.
ICO regulation is no surprise
Following this summer’s ruling that Ethereum’s “TheDAO” project was in fact a security offering, it is no surprise the SEC is taking a rather proactive approach with respect to regulating ICOs.
The ICO boom has been unprecedented, raising over $1.5 bln in 2017 alone. Many of these ICOs are either outright scams or are the result of some vague ideas in the head of a few would-be entrepreneurs.
Some on the /r/BitcoinMarkets subreddit have expressed their pleasure at the SEC’s apparent plan to get tough on ICOs. User amygdala9 stated:
“I dislike any regulatory oversight. Period. Though I'm pleasantly surprised at the SEC's chosen course of action here. They might even manage to deter a blatant exit scammer/fraudster or two from preying on idiots.”
Other points of interest in the SEC’s announcement include the first bullet point, which states that the SEC will be watching out for pump-and-dump schemes carried out via “electronic and social media.” Additionally, for digital currency users who carry out illegal activities on the Darkweb, bullet point four indicates that the SEC will be looking out for that conduct as well.
On the whole, the SEC seems to be taking a balanced approach to digital currencies. Given that many ICOs promise “tokens” that sound a great deal like “shares,” it’s unsurprising that the SEC would be interested in potential securities’ violations from that area.
Careful enforcement could prevent retail investors from being fleeced while not destroying the fledgeling ICO market entirely. Likewise, oversight over “distributed ledger technology” violations could give the SEC more power to track down and prosecute alleged scammers like Josh Garza.