The Securities and Exchange Commission has launched a broad investigation into the companies and financial professionals behind many recent initial coin offerings, or ICOs.
The investigation was first reported by the Wall Street Journal and independently confirmed by NPR. According to the Journal, the SEC has sent out “dozens of subpoenas and information requests” in recent months to companies and individuals who have facilitated ICOs.
Initial coin offerings are a way for upstart cryptocurrency firms to raise large amounts of money. In a typical ICO, inside investors are offered the first chance to buy a new cryptocurrency before it hits the market.
The companies behind many of these ICOs say they are a safe, legal way to raise capital.
But the SEC is not so sure. NPR reported last month that the regulatory agency was looking to crack down on the offerings. And new research released by Ernst & Young revealed that investor losses from botched ICOs have reached almost $400 million in recent years.
As SEC warned last year, “it is relatively easy for anyone to use blockchain technology to create an ICO that looks impressive, even though it might actually be a scam.”
And in January, SEC Chairman Jay Clayton announced he had instructed his staff to be on “high alert for approaches to ICOs that may be contrary to the spirit of our securities laws.”
Multiple sources familiar with the matter confirmed that several companies have been contacted by the SEC. They told NPR the SEC considers many ICOs to be securities offerings — meaning they must comply with applicable securities laws.
And in a report from cryptocurrency news site Coindesk, one industry lawyer who has seen the subpoenas called them “a nasty piece of business.” According to the lawyer, the SEC may be using the “hyper-detailed” 25-page long subpoenas to convince ICO backers to cooperate in the investigation.
Other lawyers familiar with the investigation say it may just be a fact-finding mission, and not necessarily an indicator of criminality. “Just because someone receives a subpoena, it doesn’t automatically mean they’re a bad actor,” one attorney told NPR.
The SEC declined to comment on reports of the investigation.