The SEC has now released its annual enforcement report, which shows a marked increase of investigations into ICOs, and further explains the principles underpinning enforcement actions.
The report, which is for the fiscal year 2018, reveals that SEC enforcement over the last year has been driven by five principles: a focus on protecting the ‘Main Street’ investor; a focus on individual accountability; keeping pace with recent technological changes; imposing remedies that most effectively further enforcement goals; and constantly assessing resource allocation.
With thirty mentions of ICOs (compared to only four in 2017), crypto assets occupy centre stage in the report. By the end of the fiscal year in late September, the SEC had launched dozens of investigations into ICOs and cryptocurrency companies, many of which are still ongoing.
Several of these investigations are given special note, including a fraudulent ICO by AriseBank that purported to be funding the world’s first “decentralized bank”; a failed ICO — Titanium Blockchain Infrastructure Services — that beguiled investors with fictional claims of business prospects to raise more than 21 million USD; and “ICO superstore” Tokenlot, that settled charges with the SEC for selling cryptocurrencies as an unregistered broker dealer.
The recent case against 1Broker is also mentioned — an international securities dealer that allegedly violated federal securities laws by offering security-based swaps funded with bitcoin.
In total, the SEC brought up to twenty stand alone enforcement actions related to ICOs and virtual assets, and charged individuals in more than seventy percent of these cases. Although most of these were at the top of the corporate hierarchy — CEOs and CFOs — auditors, accountants, and other “middlemen” were also charged.
“We have tried to pursue cases that deliver broad messages and have market impact beyond their own four corners. To that end, we have used various tools—some traditional, such as the Commission’s trading suspension authority, and some more novel, such as the issuance of public statements—to educate investors and market participants, including lawyers, accountants, as well as other gatekeepers. We believe these investor-protection efforts have been successful.”
The investigation of these cases was assisted by the Enforcement Division’s newly operational, Cyber Unit which targets cyber-related misconduct, particularly as it pertains to retail investors.
The agency claims this new unit has now emerged as a “global leader” in investigating virtual assets as well as ICO misconduct.