Although federal and state regulators in the U.S. took far more enforcement actions against crypto firms and ICOs operators in the last two years, they merely collected $36 million, a recent WSJ analysis shows.
In total, the US regulators brought up to 90 stand-alone enforcement actions related to digital assets, and charged individuals in more than 70 percent of these cases. The SEC has also launched dozens of investigations into different crypto investment schemes, many of which were still ongoing.
The SEC’s annual enforcement report shows a marked increase of investigations into ICOs, with 30 mentions this year relative to only four in 2017. In addition, the US top regulator has required many crypto companies to register their tokens as securities.
But despite the increasing regulatory scrutiny, the SEC had returned less than $40 million to harmed investors, which may be partially explained by indications that many of these probes are still ongoing.
Unless a certain scheme is clearly defined by the SEC as fraudulent or criminal, the regulator will typically allow the businesses they have penalized to continue operating and generating revenue, which is not unusual in such cases.
Another study, however, shows that more than $1 billion has been poured into ICOs where the SEC identified red flags, despite the fact that it’s nearly impossible to know which ones will survive.
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The murky sector for regulators
Several of these cases were given special note, including the self-described world’s first decentralized bank – AriseBank, Titanium Blockchain Infrastructure Services — which has raised up to $21 million from thousands of investors in the U.S. and abroad; and most recently Riot Blockchain (Nasdaq: RIOT), formerly a biotech company that saw its share price skyrocket when it refocused on cryptocurrencies.
The regulatory status of cryptocurrency offerings generally, remains somewhat murky. However, the SEC warned that securities law might apply to some virtual tokens depending on their specific characteristics. In those cases, securities registration, disclosure and other requirements apply.
SEC Chairman Jay Clayton has also highlighted the need for ICOs to register with appropriate agencies, or at least contact regulators to see if they qualify for an exemption. He also warned investors against dealing with ICO promoters who claim their product is exempt from securities registration.
Most recently, the agency postponed its decision on whether to approve the listing of what would have been the world’s first Bitcoin exchange-traded fund (ETF).
In May, the SEC’s Office of Investor Education and Advocacy (OIEA) created a bogus ICO website that shows how an investment opportunity that was too good to be true would look.
Putting cryptocurrency companies and their advisers on notice, however, failed to chill the booming market. The recent clampdown comes just as major US cryptocurrency operators are racing to build the nation’s first regulated venues for tokens deemed to be securities.