The North American Securities Administrators Association (NASAA) on May 21, 2018, announced “Operation Cryptosweep” – a coordinated series of inquiries, investigations and enforcement actions by state and provincial securities regulators related to fraudulent initial coin offerings (ICOs) and cryptocurrency-related investment products. NASAA members from more than 40 jurisdictions throughout the United States and Canada have participated in Operation Cryptosweep. Since the initiative began in April 2018, Operation Cryptosweep has generated nearly 70 inquiries and investigations and resulted in 35 pending or completed enforcement actions against companies and individuals involved in alleged ICO or cryptocurrency-related scams.
The NASAA stated in its press release that a “critical component of ‘Operation Cryptosweep’ is raising public awareness of the risks associated with ICOs and cryptocurrency-related investment products.” Joseph P. Borg, NASAA President and Director of the Alabama Securities Commission, acknowledged that “[n]ot every ICO or cryptocurrency-related investment is fraudulent,” but he urged investors “to approach any initial coin offering or cryptocurrency-related investment product with extreme caution.”
The day after the NASAA’s release, Jay Clayton, Chairman of the U.S. Securities and Exchange Commission (SEC), issued a statement praising NASAA members for their coordination and participation in efforts to combat fraud in the ICO markets. In a similar effort to raise public awareness of ICO scams, the SEC’s Office of Investor Education and Advocacy recently launched a fake ICO website touting “Howey Coins” designed to highlight for investors some of the common “red flags” in a suspicious ICO. Chairman Clayton encouraged investors to visit the website (which illustrates how to tell a legitimate investment opportunity from a scam) and review other investor education materials from regulators, and to report any potential fraud to the SEC or a state or provincial securities regulator.