Time to Worry? SEC Latest Probe Targets Cryptocurrency Brokerage Firms

SEC's requests seek information about the structure for sales, clearing agreements, details on personnel and advisors involved

The Securities and Exchange Commission sent information requests in recent weeks to dozens of US brokerage firms who are involved in cryptocurrency, Bloomberg reported Thursday, as tacking misconduct in the burgeoning market is increasingly taking center stage into the agency’s scope.

Among other things, the sweeping probe by the top U.S. securities regulator examines the brokers’ business practices and how they deal with clients, as well as fees generated from crypto trading, financing and ICOs. The SEC’s requests also seek information about the structure for sales, clearing agreements, marketing materials, details on personnel and advisors involved, and more.

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The watchdog is worried that in many cases, retail investors aren’t adequately told about the risks involved in the cryptocurrency investment products.

While the latest scrutiny significantly increases the regulatory pressure on the local industry, it only follows a series of warning shots suggesting that many crypto-linked activities may be violating securities laws. SEC Chairman Jay Clayton described the ICO market earlier this year as “rife with fraud.”

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A long list of actions to rein in the red-hot sector

The US regulators have taken enforcement actions, too, with a dozen companies having put their offerings on hold after the SEC issued warnings. Further, the agency froze assets of several cryptocurrency firms, halted ICOs and suspended trading in companies that claimed cryptocurrency or blockchain dealings.

Most recently, the SEC has rejected another attempt by Cameron and Tyler Winklevoss, founders of the Gemini cryptocurrency exchange, to list shares of what would have been the world’s first Bitcoin exchange-traded fund (ETF).

Earlier in May, the SEC’s Office of Investor Education and Advocacy (OIEA) created a ‎bogus ‎initial coin offering (ICO) website that shows how ‘too good to be’ ‎true ‎investment opportunity in cryptocurrency would look like.

Putting cryptocurrency companies and their advisers on notice, however, failed to chill the booming market. The recent clampdown comes just as titans of U.S. cryptocurrency operators are in a race to build the nation’s first regulated venues for tokens deemed to be securities.

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