Lawyers Warned Re Handling Cryptocurrency Offerings

SEC Chairman Jay Clayton has issues a stern warning to “gatekeepers” about the advice they are giving regarding initial coin offerings, or ICOs. He specifically took lawyers to task for giving equivocal “it depends” advice, “rather than counseling their clients that the product they are promoting likely is a security.” Clayton’s warning came in his opening remarks at The Securities Regulation Institute, a 3-day program presented at Northwestern University Pritzker School of Law. Clayton’s footnote to those remarks on the SEC website say they are do not necessarily reflect the views of his fellow Commissioners or the SEC staff. However, there have been other indications that regulators are acutely aware of the potential for ICOs to run afoul of securities laws. The include an SEC report issued in July of last year, following an investigation of whether a Germany-based “decentralized autonomous organization” (which had been hacked) violated U.S. security laws. The SEC determined it would not pursue an enforcement action “at this time.” However, in its conclusion it made clear that it was paying close attention to crytocurrencies. Securities laws apply, the SEC said, regardless of whether the issuing company “is a traditional company or a decentralized autonomous organization, regardless whether those securities are purchased using U.S. dollars or virtual currencies, and regardless whether they are distributed in certificated form or through distributed ledger technology.” Meanwhile, observes a recent oped in The New York Times, the IRS has also begun to push back, based on an understanding that widespread adoption of cryptocurrencies would be a huge boost to the underground economy and reduce tax revenues. The IRS, the writers note, recently “persuaded a federal judge to order Coinbase, a popular Bitcoin exchange, to reveal the identity of the customers for more than 14,000 accounts (representing nearly nine million transactions).”