SEC Chairman Jay Clayton Sounds Warning Bell For Cryptocurrency Investors

SEC Chairman Jay Clayton Sounds Warning Bell For Cryptocurrency Investors

The company still had references to the offering on its website Monday, including a link to its "new decentralized block-chain based food review and social platform".

Cryptocurrency supporters and evangelists argue that Bitcoin and many other digital currencies have unparalleled security making fraud hard, but some markets are still ripe for manipulation.

In a public statement about cryptocurrencies like bitcoin and initial coin offerings or ICOs, SEC Chairman Jay Clayton urged investors to ask lots of questions and use common sense before investing, suggested that some products might not be legal. "If any person today tells you otherwise, be especially wary".

The head of USA derivatives regulator, the Commodity Futures Trading Commission (CFTC), Christopher Giancarlo, issued his own statement backing Clayton.

The SEC's Office of Investor Education and Advocacy issued an Investor Bulletin in July 2017 to make investors aware of the potential risks of participating in initial coin offerings.

The alertscame less than a day after the first Bitcoin futures began trading on an exchange run by Cboe Global Markets Inc. Coin offerings often receive investments in the form of cryptocurrency like Bitcoin, which has soared to meteoric heights.

SEC Chairman Jay Clayton Sounds Warning Bell For Cryptocurrency Investors

Although Clayton doesn't outright condemn ICOs, he raises concerns about the dubious nature in which some projects manage their funding, all the while recognizing that he believes that ICOs "can be effective ways for entrepreneurs and others to raise funding, including for innovative projects".

"Our primary focus remains investor protection and making sure that investors are being offered investment opportunities with all the information and disclosures required under the federal securities laws", said Steven Peikin, Co-Director of the SEC's Enforcement Division.

The Securities and Exchange Commission, however, does not take so cabined a view.

But mostly, the SEC wants to make sure that investors are aware that in the fearless new world of cryptocurrency, standard economic rules still apply.

Giancarlo further noted that his agency can not effectively regulate cryptocurrencies, saying "the relatively nascent underlying cash markets and exchanges for bitcoin remain largely unregulated markets over which the CFTC has limited statutory authority". The term implies that the token for sale will be used to purchase a service (much like a subway token in the physical world), and so it's not a security that needs to be registered.

"Who is issuing and sponsoring the product, what are their backgrounds, and have they provided a full and complete description of the product? What specific rights come with my investment?"