SEC comes down hard on cryptocurrency ICOs, warns of potential investment risks

The U.S. Securities and Exchange Commission (SEC) openly warned the public this Monday of the risks involved in investing in cryptocurrencies, and the possibility that they could be violating federal securities law.

Trump-appointed SEC Chairman Jay Clayton said that investors must exercise “extreme caution” when putting their money into ICOs or Initial Coin Offerings, the crypto equivalent of an Initial Public Offering (IPO) of a company’s stocks.

This is a significant event for new crypto issuances because it signals that the SEC will intervene when there are regulatory violations of ICO registrations.

According to SEC officials, rules would be enforced in certain cases even if no claims of fraud were brought forward.

Clayton’s statement came mere hours after stopping Munchee, a restaurant review app company, from attempting to launch an ICO without registering it as a security.

In the Munchee case, the SEC’s point of contention was that the company wanted to sell “MUN tokens” to raise $15 million worth of capital.

These tokens could either be purchased or earned by users for writing restaurant reviews, and would potentially increase in value over time.

Munchee has also been in talks with restaurants to start accepting MUN tokens for meals, and to sell ads for tokens instead of cash.

According to the SEC, since MUN tokens reasonably offer a chance of a return greater than the investment, it must be treated as a security and, therefore, registered with the securities watchdog.

That’s a major move because the SEC will now be watching ICOs with much greater interest than before.

It’s also positive move for investors because crypto offerings are slowly beginning to get more regulated, ensuring fair play and a better chance to make money on legit operations.

Although the SEC doesn’t currently regulate cryptocurrency markets, the way things are going that angle might have to be addressed sooner rather than later.

You can read Clayton’s full statement on cryptocurrencies and ICOs here.

+++ + +++