As we previously reported, in May 2018, more than 40 state and provincial securities regulators in the United States and Canada launched a coordinated enforcement sweep of the ICO market dubbed “Operation Cryptosweep.” On August 28, 2018, the North American Securities Administrators Association (“NASAA”) published a press release with an update on the progress of this initiative. According to NASAA, more than 200 active investigations of ICOs and cryptocurrency-related investment products are currently underway, and blue sky regulators have brought 46 enforcement actions to date.

NASAA President and Alabama Securities Commission Director Joseph P. Borg noted that while some of the investigations initiated as part of Operation Cryptosweep involve suspected securities fraud, blue sky regulators are also finding many other potential violations of state and provincial securities laws, including failure to properly register a product before it was offered to investors. According to Mr. Borg, “While not every ICO or cryptocurrency-related investment is a fraud, it is important for individuals and firms selling these products to be mindful that they are not doing so in a vacuum; state and provincial laws or regulations may apply, especially securities laws.”

Like the U.S. federal securities laws, most U.S. states and Canadian provinces require that any offering of securities either be registered with the appropriate securities regulator or be exempt from that registration. Available exemptions vary widely by jurisdiction and do not always track federal law. We discuss registration issues further in our recent post on airdrops.