The Securities and Exchange Commission announced on 25 September the creation of a new Cyber Unit to investigate initial coin offering ("ICO") and cryptocurrency misconduct.

According to the press release the Cyber Unit, which forms part of the SEC's Enforcement Division, will be targeting many of the risks associated with ICOs (for further analysis of these risks see Freshfields Digital's blog post "$35 million in 30 seconds: Initial Coin Offerings explained"):

  • Market manipulation schemes involving false information spread through electronic and social media
  • Hacking to obtain material nonpublic information
  • Violations involving distributed ledger technology and initial coin offerings
  • Misconduct perpetrated using the dark web
  • Intrusions into retail brokerage accounts
  • Cyber-related threats to trading platforms and other critical market infrastructure

Speaking at the Securities Enforcement Forum on 26 October, SEC Division of Enforcement co-director Stephanie Avakian said:

"Blockchain technology presents many interesting issues and can of course present legitimate opportunities for raising capital. But, like many legitimate ways of raising capital, the popular appeal of virtual currency and blockchain technology can be an attractive vehicle for fraudulent conduct. We think that creating a permanent structure for the consideration of these issues within the Cyber Unit will ensure continued focus on protecting both investors and market integrity in this space."

The new unit reflects an increasing focus on ICOs by the regulator. In July, the SEC concluded that many coins constitute 'investment contracts' under the SEC v Howey test, and subsequently moved to suspend trading of several allegedly-fraudulent ICO issuers.