North American Securities Administrators Association (“NASAA”) members from more than 40 jurisdictions across the United States and Canada are working together in “Operation Cryptosweep,” a coordinated series of enforcement actions to crack down on fraudulent initial coin offerings (“ICOs”), cryptocurrency-related investment products and the individuals behind them. NASAA organized a task force of its members in April 2018 to begin these coordinated investigations, which identified hundreds of ICOs in the final stages of pre-launch preparation and other cryptocurrency-related investment products.
In a press release publicizing the progress of Operation Cryptosweep thus far, NASAA announced the efforts have resulted in 70 inquiries and investigations and 35 pending or completed enforcement actions since the beginning of May. Joseph Borg, NASAA President and Director of the Alabama Securities Commission, called these actions “just the tip of the iceberg.” Borg referred to the subjects of the sweep as “cryptocriminals” and warned that “state and provincial securities regulators are taking swift and effective action to protect investors from their schemes and scams.” Cease and desist letters have been sent to companies in a number of states, including Alabama, Colorado, Maryland, Massachusetts, Missouri, New Jersey, North Carolina, Ohio, South Carolina and Texas and New York has sent out numerous investor demand letters.
On the same day NASAA announced Operation Cryptosweep, Christopher Giancarlo, Chairman of the Commodity Futures Trading Commissions (“CFTC”) announced a Memorandum of Understanding (“MOU”) between the CFTC and individual state securities commissions to share information and resources among agencies to bolster enforcement actions. Speaking to an audience at the NASAA Conference in Washington, D.C., Giancarlo said the MOU provides a much needed resource for the CFTC and state securities authorities as distributed ledgers and virtual currencies continue to evolve quickly.
In a public statement expressing his support, SEC Chairman, Jay Clayton, applauded NASAA’s coordinated sweep in a and said it should be a “strong warning” to fraudsters in the crypto space.