Chairman Clayton noted that he had instructed the SEC staff “to be on high alert” for these situations. These comments follow his unscripted remarks during a PLI speech in November that “I have yet to see an ICO that doesn’t have a sufficient number of hallmarks of a security.” We understand that many of the roughly two dozen enforcement attorneys in the SEC’s new Cyber Unit are focused on ICO and blockchain-related investigations, with more cases in the pipeline.
With the SEC’s assertion of jurisdiction over ICOs as securities, and the CFTC’s recent release indicating that it would regulate and monitor cryptocurrency futures contracts, registration and compliance issues are paramount. If a violation renders a security defective, transactions involving cryptocurrencies or ICOs may also be called into question as either void (automatically unwound) or voidable (unwound at the wronged party’s discretion). Fund managers with investments in or exposure to ICOs and, more broadly speaking, cryptocurrencies should prepare for increasing regulatory scrutiny and enforcement spillover.