Steven Peikin, the co-director of the SEC’s Division of Enforcement gave a speech at the Harvard Law School’s Program on the importance of international cooperation in pursuing fraudulent ICOs on December 3, 2018.
Peikin highlighted the need for global assistance when it comes to fighting fraud in the ICO and cryptocurrency sector, as many of the sponsors and founders are located outside of the U.S.
ICOs Raised Over $22 Billion In 2018
In the last few years, the SEC enforcement team had focussed a lot of attention to the ICO sector. ICOs quickly emerged from being a mere concept to a new way of fundraising for many early-stage startups.
In 2016, early stage blockchain-based startups raised less than $100 million via ICOs. However, in 2018, ICOs raised over $22 billion, which is an increase by 22,000 percent from 2016. ICOs were emerging in many different market segments ranging from finance, gaming, trading, e-commerce, to transport, advertising, and social networking with a lot of the money raised from international and U.S. investors.
While many investors were excited to invest in projects leveraging distributed ledger technology, the SEC warned that the growing ICO market was in fact, a very high-risk type of investment. Issuers may lack clear track records, and many ICOs do not have viable business models, products, or even the capacity to protect cryptocurrencies from hackers.
International Assistance Becomes Great Asset to the SEC
Peikin noted that many ICO companies also violate two types of securities laws. Many ICOs, while they meet the definition of a security, are however being sold, traded or brokered to US investors without following the requirements of federal securities law.
On the other hand, many ICOs are also frauds that leverage the hype around cryptocurrencies to take money from investors. While many ICOs target US investors, the organizers and sponsors are often located outside of the country, so international collaboration and partnerships are critical when it comes to investigations and enforcement actions.
In 2017, the SEC had to undergo an emergency asset freeze to stop an ICO fraud that raised to $15 million from U.S. investors. The ICO promised returns of a 13-fold profit in less than a month. The AMF in Quebec informed the U.S. SEC about this ICO and was also helpful as they also provided evidence to support the SEC’s complaint
It goes to show that international assistance is a crucial aspect for the U.S. SEC, especially as they continue to research other ICO investigations. Peikin mentioned in his speech that the U.S. SEC is grateful for their overseas partners as the international assistance they’ve received is vital to their research and investigations.