Regulators worldwide have experienced various challenges in their attempt to regulate the Crypto sector. The U.S. Securities and Exchange Commission (SEC) has been playing a leading role in regulating initial coin offerings (ICOs). According to the regulator’s co-director of the enforcement division Steven Peikin, collaboration with international regulators is helping in investigating ICOs.
SEC Finds It Hard To Identify Misconduct
While speaking at Harvard Law School, Peikin said that SEC is having difficult times ferreting out misconduct. According to the senior official, the agency is recommending enforcement actions where necessary. Some of these recommendations include delisting of securities, suspensions and bars of involved parties, penalties, cease-and-desist orders, injunctions etc. These decisions are taken to protect the interests of investors.
Peikin said that working closely with international regulators is critical in enabling SEC to achieve its goal of preventing the misuse of ICOs. He added that many ICOs are located outside the US, from where they raise funds from people within and outside the country. Consequently, it is hard for the agency to track fraudulent activities without collaboration with relevant authorities.
Previous Collaboration With Quebec Regulator Worked
According to Peikin, SEC has two types of securities laws violation with ICOs. First, there are ICOs that meet the agency’s definition for a security. However, they don’t comply with federal securities laws when being traded, brokered, or sold to the US investors. Second, there are ICOs that are just frauds. In this case, the issuers of such tokens are simply relying on the excitement and popularity of Cryptocurrencies to rip off money from unsuspecting investors.
Peikin termed the assistance SEC has received from international regulators “essential.” In one case, for instance, the agency worked closely with Canada’s Autorité des marchés financiers in Quebec province to charge two Canadian residents linked to the fraudulent Plexcoin token sale. The agency will continue collaborating with the other regulators around the world settle ICO investigations according to Peikin.
Popularity Of ICOs Growing Despite Risks
Recently, ICOs have become a popular fundraising method for most startups in the Crypto sector. According to Peikin, in the last two years, the sector has grown by around 22,000 percent. Investors wishing to take part in these projects only need to have an internet connection. On the part of entrepreneurs, they only need to have great ideas making it easy for almost everyone to launch an ICO.
Thousands of startups around the world have been able to raise funds through ICOs. However, there have been concerns about lack of regulation in the sector. Although some projects have lived up to their promise, they are others that have failed to launch leading to huge losses on the part of investors. This year, over $22 billion has been raised through ICOs.
According to Peikin, the rapid growth of this sector has obscured the risks associated with such investments. He added that some of these issuers lack established track records. Some projects also do not have a workable business model or even viable projects. The other risk is a lack of the capacity to protect the coins from hackers.