A day after his agency intervened to halt an initial coin offering (ICO) sale, the Securities and Exchange Commission (SEC) chairman, Jay Clayton, issued a note urging investors in cryptocurrencies and ICOs to exercise caution and “ask good questions, demand clear answers and apply good common sense” while investing in the instruments. Clayton also included a list of questions that could help investors make informed decisions.  

Digital currencies remain outside the SEC's purview but it has issued advisories regarding ICOs in the past. This is the first time the SEC chairman has released a note on cryptocurrencies and ICOs. His statement could be taken as a sign that the agency might soon play a more active role in regulating cryptocurrencies. (See also: Government Regulations Regarding Bitcoin Around The World.) 

In his statement, the SEC chairman referenced the extranational nature of cryptocurrencies and stated that the risks associated with such investments could be “amplified” since the SEC will not be able to pursue bad actors across borders.

Clayton also warned brokers of cryptocurrencies, saying they should ensure that their instruments do not undermine “Anti-Money Laundering” or “Know Your Customer” obligations. 

Clayton also came down hard on ICOs. (See also: How The SEC Is Regulating Coin Offerings.) He pointed out that a change in the structure of a security does not mean that securities laws should not be followed. Startups offering ICOs have argued that the cryptocurrency tokens offered during the fundraising process are not equity in a company and hence are not subject to security laws.

Clayton stated that tokens that incorporate marketing efforts emphasizing “potential for profits based on entrepreneurial or managerial efforts of others” still have to obey securities laws. He also criticized entrepreneurial efforts to circumvent laws and celebrities touting ICOs through their Twitter feeds.

“Selling securities generally requires a license, and experience shows that excessive touting in thinly traded and volatile markets can be an indicator of 'scalping,' 'pump and dump' and other manipulations and frauds,” he wrote. 

The SEC’s statement comes shortly after the CBOE launched bitcoin futures trading. The CME is scheduled to start similar services on December 18. (See also: Bitcoin Futures Suggest Breakneck Rise In Price To Slow.)  

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