The US Securities and Exchange Commission (SEC) has published a report describing the actions taken against ICOs and fraudulent financial initiatives and, indeed, the year has been characterized by cases. The report describes the actions for the fiscal year of 2018, which ended on September 30, and offers information on the fraud related to the ICO that has apparently emerged in recent months.
Incorrect actions against ICOs and similar cryptocurrency initiatives are led by the Cyber Unit of the organization, which has become fully operational this year. The SEC explains in the report: "We believe that our approach to application in this space has been thoughtful and coherent.It is important to underline that it provided a model for the authorities of other countries, where frauds and violations of US investors ".
The report considers the ICOs as "high risk investments", since many "lack feasible products or consolidated track records". The paper also says that many contain shady business models or are unable to protect digital assets from theft of hackers, while others are completely fraudulent and operate under the guise of raising corporate capital.
Since the formation of the Cyber Unit, SEC's actions against cyber-related misconduct have increased significantly. In 2018, the organization brought to light 20 independent cases related to financial frauds, 12 of which related to ICOs and digital resources. At the end of the fiscal year, the SEC states that it has had approximately 225 investigations related to cyber-computing that have occurred simultaneously.
One of the biggest cases against an ICO concerned two people who had opened up a business known as TokenLot LLC, which they described as an "ICO hypermarket". The SEC filed charges against both figures for acting as an unregistered dealer-dealer and for participating in an unregistered register, although the allegations were later resolved in mid-September.
The SEC also obtained an emergency order blocking an ICO led by Titanium Blockchain Infrastructure Services, Inc. and its president Michael Alan Stollery, a self-proclaimed "blockchain evangelist". That ICO raised about $ 21 million from thousands of investors both inside and outside the US, but the SEC was involved after complaining that Stollery had lied about Titanium's trading relationships with the Federal Reserve and many others consolidated businesses including Verizon, PayPal and the Walt Disney Company. Further claims also claimed that the Titanium website contained false testimonials from corporate customers.
Other instances concerned the cyber-intrusion of a broker-dealer and investment advisor in Iowa. The intrusion has compromised the personal information of several thousand customers. The SEC has accused the company of violating the Red Flags identity rule – also known as Regulation S-ID – which helps protect investors from the risks of identity theft. The SEC also charged another defendant who allegedly manipulated the prices of Fitbit securities through false declarations of conformity.
The SEC recognizes that ICOs have become a popular method of raising capital for start-ups and new businesses. While representatives do not wish to stifle innovation in financial space, they have worked hard over the past few months to instruct investors on what fundraising efforts may or may not be legitimate. The methods to inform investors include the issuance of public statements and the application of commercial suspensions. The SEC also recommended enforcement actions against companies seeking to violate registration protocols or engage in broker-dealer activities without a license.
In addition, the SEC has implemented harsher methods of fight against fraud, such as the Classification of Classification of Participation Classes (SCSD), designed to identify and quickly remedy widespread financial violations. The SEC is now planning to apply the SCSD standards to ensure the return of substantial funds to retail investors that have been cheated by fraudulent ICOs.
To view the full report, click here.