SEC’s Cyber Unit Stops Virtual Currency Offering

The SEC obtained an emergency asset freeze against a fraudulent internet-based initial coin offering.  According to the SEC, the Canadian respondents promised outlandish returns and made other significant misrepresentations as part of a scheme that raised over $15 Million from thousands of investors through offerings of a crypto-currency advertised on various social media sites.  The SEC asserts that the offering of virtual tokens constituted an illegal offering of securities and that it was made available to U.S. investors through the internet.  The SEC announced that this case is the first filed by its new Cyber Unit, which was created in September to focus on “misconduct involving distributed ledger technology and initial coin offerings, the spread of false information through electronic and social media, hacking and threats to trading platforms.”

OUR TAKE: Perhaps most significant is the SEC asserting (without much precedent or support) that an initial coin offering is an offering of securities subject to the securities laws.  This view may lead to broader regulatory oversight of cryptocurrency offerings.  Also, we expect that this first action by the Cyber Unit won’t be its last.