The US Securities and Exchange Commission (SEC) has issued dozens of subpoenas and information requests to technology firms and advisers involved in the virtual-currency market, the Wall Street Journal reports, citing people familiar with the matter.
The sweeping probe follows a series of warning shots from the securities regulator that suggested that many initial coin offerings (ICOs) may be violating securities laws, the report said.
The wave of subpoenas includes demands for information about the structure for sales and pre-sales of the ICOs, sources were quoted as saying.
US regulators have repeatedly put cryptocurrency firms and their advisers on notice in recent months amid suspicions of widespread violations of securities rules designed to protect investors.
“Many promoters of ICOs and cryptocurrencies are not complying with our securities laws,” SEC chairman Jay Clayton said earlier this year.
In another speech he said he has instructed his staff to be “on high alert for approaches to ICOs that may be contrary to the spirit” of those laws, the Journal noted.
Such warnings have, however, failed to chill the booming market for digital tokens.
Coin offerings have already raised about US$1.66 billion this year and are on pace to top last year’s US$6.5 billion tally, the report said, citing research and data firm Token Report.
“We’re seeing the tip of the iceberg … there is going to be a ton of enforcement activity,” said Dan Gallagher, an SEC commissioner from 2011 to 2015 who now sits on the board of a blockchain firm.
Gallagher told an SEC conference in Washington last week that the largely unregulated token offerings are “the freaking Wild West—it is ‘Wolf of Wall Street’ on steroids,” according to WSJ.
Robert Cohen, head of the SEC’s cyber-enforcement unit, last week said at least a dozen companies have put their offerings on hold after the agency raised questions.
Many of the cryptocurrency-related subpoenas were issued in recent weeks, likely paving the way for what lawyers and industry insiders expect to be a dramatic upturn in enforcement activity.
The SEC scrutiny is focused in part on “simple agreements for future tokens,” or SAFTs, which are used in some of the most prominent crypto-fundraisings, sources told the Journal.
The agreements allow big investors and relatively well-off individuals to buy rights to tokens ahead of their sale. The rights can be traded, or flipped for profits, even before the sale begins.
The SEC is concerned that such agreements are potentially being used to trade like securities without conforming to the strict rules that apply to securities, the report said.
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