Former CFTC Chairman Gary Gensler: ICOs Should be Considered Securities

Former chairman of the U.S. Commodity Futures Trading Commission (CFTC), Gary Gensler said that most tokens sold through Initial Coin Offerings (ICOs) should be classified as securities, Bloomberg reported Oct. 15.

Should cryptocurrencies be considered securities, they would fall under the regulatory purview of the U.S. Securities and Exchange Commission (SEC). Issuers of coins would have to comply with certain laws, register with the SEC, and disclose specific information like a description of the organization’s properties or financial statements.

When asked whether blockchain technology should be regulated, Gensler asserted that “we should be technology-neutral.” He continued, stressing the necessity to ensure investor protection within certain blockchain applications, such as cryptocurrencies. Gensler said:

“I think that cryptocurrencies like Bitcoin (BTC) need more protection, and probably more protection than even the oil markets.”

Speaking about future developments in blockchain regulation, Gensler said that there should be some sort of oversight — “traffic lights and speed limits” — to ensure confidence on “crypto roads.” Gensler said he thinks that the two will coexist, but “it will take a number of years to sort it through and get the balance right.”

Gensler’s words echo a statement from SEC Senior Advisor for Digital Assets and Innovation, Valerie A. Szczepanik, who said that “if you want [the crypto] industry to flourish, protection of investors should be at the forefront.”

Speaking at a U.S. SEC and CFTC senate hearing in February, SEC chairman Jay Clayton said that while every ICO token the SEC has seen so far is a security, a distinction should be made between tokens and major digital currencies such as BTC and Ethereum. The definition of ETH as a security has reportedly been questionable.

In December last year, Clayton issued a public statement, concluding that most tokens sold in ICOs are likely securities under U.S. law. Clayton then noted that the content of the transaction is more important than the form in determining if an investment is a security.

SEC Freezes Platform’s ‘Approved’ ICO and Charges Founder with Fraud

A platform falsely claiming to have SEC approval has been charged by the commission who, in turn, plans to halt its upcoming ICO and bar its founder from offering securities in the future.

The world of ICOs is a busy one, and if you’re in the U.S., it also involves the Securities and Exchange Commission (SEC). The commission has been cracking its whip against platforms who fail to follow its prescribed processes. This includes registering with the agency once it is confirmed that the currency in question is indeed a security.


SEC Gives Platform the Cold Shoulder

However, according to an SEC press release, one company believed that they could cheat the system. Blockvest LLC and its founder, Reginald Buddy Ringgold III, who is also known as Rasool Abdul Rahim El, made some bold claims when it came to promoting the platform. Because of these assertions and investor feedback, the commission has charged Ringgold with “violating the antifraud and securities registration provisions of the federal securities laws.”

In addition to stating that Blockvest’s ICO had received the go-ahead from the commission and was fully “licensed and regulated,” Ringgold also promoted it through a fictitious agency called the Blockchain Exchange Commission. The fake commission used a similar logo to that of the SEC and also used the same address as the agency.

The Chief of the SEC Enforcement Division’s Cyber Unit, Robert A. Cohen, set the record straight, stating:

We allege that this ICO is using both the SEC seal and a made-up crypto regulatory authority to trick investors into believing the ICO was approved by regulators. The SEC does not endorse investment products and investors should be highly skeptical of any claims suggesting otherwise.

ICO fraud

Consequences of Fraud

The platform also reportedly used the seal of the National Futures Association (NFA) in a further attempt to legitimize the business. The NFA later issued Blockvest with a cease and desist notice.

The SEC has filed and subsequently obtained an emergency court order to stop the platform’s upcoming ICO and to halt any pre-ICO funding efforts. The commission is also hoping to have injunctions implemented and to have Blockvest return any funds that they received. In addition, the commission wants to bar Ringgold from offering any securities in the future.

A hearing for the case is scheduled to be held on the 18th of October.

What fate do you think awaits Blockvest? Do you think we’ll see more false claims of SEC-approved ICOs? Let us know in the comments below!

Images courtesy of Pixabay and Shutterstock.

Tags: , , , , ,

US Regulator Issues Cease and Desist Orders Against Three Crypto Promoters

North Dakota Securities Commissioner Karen Tyler has issued cease and desist orders against three firms for allegedly offering unregistered and fraudulent securities in the form of Initial Coin Offerings (ICOs), according to an announcement published Oct. 11.

The companies at the center of the orders are Crystal Token, Advertiza Holdings (Pty) Ltd., and Life Cross Coin a/k/a LifecrosscoinGmbH. Per the statement, Crystal Token (CYL) is an “evolutionary multi-utility” ERC-20 token, that promises earnings up to two percent per day. The token’s website allegedly contains fraudulent claims of “excessive unsubstantiated” rates of return on investment. CYL is not authorized to sell securities in North Dakota.

Advertiza Holdings offers cryptocurrency called “Tizacoin,” or “TIZA,” and claims that holders “can expect to make a profit from the appreciation of the value of TIZA tokens.” That, according to the regulator, indicates that the token’s description as a utility token is incorrect, and is instead a security.

According to the North Dakota Securities Department, Advertiza falsely claims to be registered with the U.S. Securities and Exchange Commission (SEC) and is also not registered to sell securities in North Dakota.

The third firm, Life Cross Coin, operates a website from a Berlin IP address associated with ransomware, malware, and identity fraud, and offers a cryptocurrency called “Life Cross Coin,” or “LICO.” The firm claims that the token will be spent on charity, while investors can allegedly get a “huge return on investment.” LICO is not registered in North Dakota, and its site reportedly contains unsubstantiated claims and blatant misrepresentations. Tyler commented on the orders:

“The continued exploitation of the cryptocurrency ecosystem by financial criminals is a significant threat to Main Street investors. In formulaic fashion, financial criminals are cashing in on the hype and excitement around blockchain, crypto assets, and ICOs – investors should be exceedingly cautious when considering a related investment.”

The order is part of Operation Cryptosweep, a coordinated multi-jurisdiction investigation into potentially fraudulent crypto investment programs, that involves 40 U.S. and Canadian state and provincial securities regulators. Since the initiative’s launch in May, investigators discovered about 30,000 crypto-related domain names and conducted over 200 investigations of ICOs.

In May, the Colorado Securities Commissioner launched probes into two companies — California-based Linda Healthcare Corp. and Washington-based Broad Investments LLC — for promoting unlawful ICOs.