The SEC’s had enough of initial coin offerings (ICOs) that have managed to raise $8 billion since 2016 even though their lofty projects don’t exist beyond a simple whitepaper.
Now it’s striking back, a bit late in the day, with the Wall Street Journal reporting—unconfirmed—that the SEC has already issued "scores of subpoenas".
But it’s always easier to target the big fish—like blockchain darling Overstock.com (NYSE:OSTK)—than it is to dig into the sea of rotten ICOs that have crashed and burned, some of them before raising any money, but many after fleecing investors for all they’re worth.
ICOs make it incredibly easy to raise money. Armed with nothing bigger than a whitepaper, they’ve defeated regulators with ease.
While the SEC hasn’t confirmed its apparent barrage of subpoenas, many believe the regulatory body is finally getting serious.
SEC Chairman Jay Clayton recently hinted as much, telling a Senate hearing:
"With the support of my fellow Commissioners, I have asked the SEC's Division of Enforcement to continue to police these markets vigorously and recommend enforcement actions against those who conduct ICOs ... in violation of the federal securities laws.”
But Overstock is probably not the best target—or, indeed, the real target. It has, however, been caught in the crossfires. The stock lost 10 percent in early Thursday trading on news the night before that it the SEC had requested "certain documents related to the Offering and the Tokens in connection with its investigation."
It looked set to close a bit higher, sitting 6 percent down before the bell.
Overstock made it onto the SEC list because its subsidiary, tZero, is raising $250 million through a token sale—part of its joint venture to launch a digital coin exchange. It was the announcement in the third quarter of last year that tZero would enter digital trading that sent OSTK shares soaring. Its shares are up some 200 percent over the past 12 months.
As the holder of one of the largest blockchain-focused exchange-traded funds, Overstock is an obvious target.
And no one’s surprised that the SEC is targeting ICOs; though many are wondering why it took so long.
The regulatory body’s goals, however, remain unclear. There is much chatter in the space as to whether the SEC is trying to enforce or deter. It may, indeed, be a way to get new ICOs to seek regulatory approval on their own, up front.
The recent acquisition of the Poloniex crypto exchange by Goldman Sachs-backed Circle is a case in point. According to the New York Times’ Nathaniel Popper, the SEC told Circle it would not pursue enforcement action against Poloniex if Circle moved to seek the appropriate regulatory approval to operate the token exchange.
By David Craggen for Safehaven.com
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