HomeAltcoin NewsUS Regulators Investigating 200 ICOs for Possible Fraud

US Regulators Investigating 200 ICOs for Possible Fraud


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An organization, comprising 67 areas in the US, Mexico, and Canada, is scrutinizing 200 ICOs to determine if they are adhering to regulations as well as ruling out any possible investor fraud.

In the cryptocurrency industry, talk of regulation elicits different responses. Some people believe that it is almost blasphemous to try and control any part of a decentralized structure while others believe that it can really help in providing potential users a sense of security which would encourage adoption.

A key part of the industry is ICOs. CNBC reports that this type of crowdfunding raised over $12 billion in 2018 alone, with funds mostly coming from retail investors. However, as the industry grows and gains traction, so too does the risk of fraud. In fact, some ICO exit scams have netted nearly $100 million so far.


ICOs in the Spotlight

The North American Securities Administrators Association (NASAA) began its “Operation Cryptosweep” as a way to combat this. While the name sounds very doom and gloom-ish, it is essentially an investigative unit set up to examine these ICOs to determine if there is any nefarious play at work.

A noble effort, and one that seems to be keeping the team quite busy. The month of May saw 70 cases, which has nearly tripled to 200 cases so far. NASAA President Joseph P. Borg gave would-be fraudsters some warning, saying:

A strong culture of compliance should be in place before, not after, these products are marketed to investors. 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.

While the US Securities and Exchange Commission (SEC) states that virtual currencies are not securities, they say that many ICOs are and are subsequently subject to regulation. SEC Chairman Jay Clayton previously stated:

A token, a digital asset, where I give you my money and you go off and make a venture, and in return for giving you my money I say ‘you can get a return’ that is a security and we regulate that. We regulate the offering of that security and regulate the trading of that security.

Some ICO investors disagree as they believe that because some of these virtual currencies give contributors future access to a service or product, they should be seen as utilities and therefore not subject to any type of SEC regulation.

Potential ICO fraud

Advice for Both Sides

Borg, who is also the Alabama Securities Commission (ASC) Director, explained how the operation is for the benefit of both the investors and the ICO creators, stating:

The ASC is committing the necessary regulatory resources to protect investors in Alabama from financial harm involving fraudulent ICOs and cryptocurrency-related investment products and also is raising awareness among industry participants of their regulatory responsibilities.

Borg concluded with some advice for potential investors, saying:

Do your homework and contact the ASC with any concerns before parting with your hard-earned money – afterwards may be too late.

This recommendation can easily be issued to cryptocurrency platforms as well. In this new era of regulation, it is essential that potential ICO developers research the requirements that need to be adhered to before they invest their time and money into their ICO. These could differ from state to state and even country to country, but due diligence needs to be done regardless.

Do you think regulating ICOs is a positive step towards global cryptocurrency adoption? Let us know in the comments below!

Images courtesy of Shutterstock.


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