The year 2018 was a busy one for the SEC in the digital asset space, with the agency cementing its role as the primary de facto regulator of crypto finance in the United States. The SEC’s enforcement division was operating at full speed, bringing a series of enforcement cases in the crypto space with an emphasis on fraud and scams involving digital assets. Notably, the SEC brought first of its kind cases involving digital securities against an unregistered broker-dealer, an unregistered investment company and an unregistered token exchange. The SEC also took action against an airdrop of securities, while at the same time providing general guidance on when the federal securities laws apply in the first place.
At the end of 2018 the SEC:
- Settled cases against a well-known professional boxer and music producer for unlawfully touting ICO securities without disclosing they were compensated to do so. The SEC also issued a general warning to investors about celebrity endorsements.
- Settled cases against two ICO issuers (here and here) for conducting unregistered securities offerings. These were the SEC’s first cases imposing civil penalties solely for ICO securities offering registration violations. Both companies agreed to return funds to harmed investors, register the tokens as securities, file periodic reports with the SEC, and pay penalties.
- Issued a helpful staff Joint Statement on Digital Asset Securities Issuance and Trading, which summarized previous agency pronouncements and enforcement actions.
On December 20, 2018, Reps. Warren Davidson (R-Ohio) and Darren Soto (D-Fla) introduced a bill to Congress entitled the Token Taxonomy Act. In an effort to strip the SEC of its authority to regulate ICOs, the bill defines “digital token” and amends the federal securities laws so that such digital tokens are not deemed securities. The bill also seeks to change federal taxation of certain transactions in virtual currency. Passage of the bill is far from certain, but this legislation joins a growing list of bills Congress has recently considered on the regulation of digital assets.
Heading into 2019, we may finally see the agency issue additional guidance on token offerings. SEC staff have highlighted digital assets (including cryptocurrencies, coins and tokens) as an examination priority. Although several issuers have reportedly filed papers with the SEC to conduct registered token offerings, the SEC has approved none of them to date. Many token issuers have therefore decided against SEC-registered offerings and instead plan to conduct private offerings that comply with applicable SEC regulations. We anticipate that 2019 will again be a year of firsts for the SEC in the digital asset space.