SEC’s Annual Report Notes ICOs Heavily Investigated in FY 2018

The US Securities and Exchange Commission (SEC) released its annual enforcement report for fiscal year 2018 on Friday (November 2), highlighting that investigations into initial coin offerings (ICOs) has steadily increased throughout the year.

According to the report, since the Division’s Cyber Unit became operational in FY 2018, it has emerged as a “global leader” in investigating digital assets and ICO misconduct thanks to the rise in crypto-asset offerings.

The SEC claims that with the explosion of crypto-asset offerings and ICOs, it has often gone unnoticed that these are considered high-risk investments offerings. The agency exampled that issuers may not have established track records, viable products, business models and the ability to keep digital assets safe from being stolen by hackers as potential dangers.

The report says that at the close of FY 2018, the SEC launched more than a dozen stand alone enforcement actions related to digital assets and ICOs as a result of the Cyber Unit recommending action be taken by the SEC in ICO-related matters.

“In the past year, the Division has opened dozens of investigations involving ICOs and digital assets, many of which were ongoing at the close of FY 2018,” the report reads.

The SEC exampled three fraudulent ICOs that stiffed investors out of US$68 million combined: co-founders from an unnamed financial services start-up that raised more than US$32 million from “thousands” of investors; Titanium Blockchain Infrastructure Services and its president, a self-described “blockchain evangelist” that raised more at least US$21 million from investors in the US and outside of it; and a recidivist securities law violator and his organization which raised roughly US$15 million from thousands of investors with the promise of a 13-fold profit in under a month.

Other ICO-related illicit activity the SEC noted includes: AriseBank and its co-founders which sold a fraudulent ICO targeting retail investors to fund what they called the world’s first decentralized bank; and TokenLot LLC, which called themselves an “ICO Superstore” and its owners acting as unregistered broker-deals, among many others.

In total, the SEC brought 20 stand alone cases related to ICOs and digital assets. By the end of the fiscal year, the division had more than 225 cyber-related investigations ongoing.

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Securities Disclosure: I, Jocelyn Aspa, hold no direct investment interest in any company mentioned in this article.