It’s official – not all initial coin offerings (ICOs) are fraud – according to US Securities & Exchange Commission chief Jay Clayton.
Clayton, one of the most influential investment commentators in the world, made his remarks in a speech at Princeton University.
He explained that the SEC crackdown on ICOs was aimed at protecting consumers and rooting out rogue traders.
“Driving out bad actors early on will ensure that the government won’t eventually adopt a hard-line stance that it will effectively choke off a budding industry,” he said.
Battle against fraud
“Is the approach taken in Washington by the SEC adversely affecting distributed ledger technology in other areas? My hope is that it’s helping because this technology is being used for fraud. And to the extent that it’s being used for fraud, history shows that government comes down harshly on that technology later.
“If we don’t stop the fraudsters, there is a serious risk that the regulatory pendulum – the regulatory actions – will be so severe that they will restrict the capacity of this new security.”
The problems with cryptocurrency and fraud is the opportunity for crime is designed into the system.
Cryptocurrency is unregulated by governments and central banks, which means there is no unified policing of the sector, which leaves cracks for crooks to exploit.
Add to this eager investors willing to part with their money for expected sky-high profits, and the crooks have a ready supply of victims to prey on.
Tighter rules for traders
Several governments are tightening up their local rules to control the millions of pounds held by cryptocurrency traders.
In the UK, investment watchdog the Financial Conduct Authority is ready to declare trading in cryptocurrency derivatives a regulated activity.
The regulator said: “We are aware of a growing number of UK firms offering so-called cryptocurrencies and cryptocurrency-related assets.
“It is likely that dealing in, arranging transactions in, advising on or providing other services that amount to regulated activities in relation to derivatives that reference either cryptocurrencies or tokens issued through an initial coin offering (ICO), will require authorisation by the FCA.”
In Japan, regulators have banned two exchanges for failing to carry out adequate know-your-customer anti-money laundering checks.