What has happened?
The US Securities and Exchange Commission (SEC) has revealed that it has taken more than a dozen enforcement actions involving digital assets and initial coin offerings (ICOs) in the fiscal year that ended 30 September.
What does this mean?
The SEC's Division of Enforcement has released its fiscal year 2018 annual report, which is the second of its kind and in which it highlights actions taken to crack down on fraud in the financial system and to protect investors and market integrity.
This year, digital assets and ICOs are a key aspect of the document, with about 30 mentions and a section dedicated to the SEC's activity in that field.
"Given the explosion of ICOs over the last year, we have tried to pursue cases that deliver broad messages and have market impact beyond their own four corners," the SEC said.
The agency added that the exuberance around digital assets and ICOs can "obscure the fact that these offerings are often high-risk investments", with issuers lacking proper track records, viable products, business models or the ability to protect digital assets from hackers.
Some offerings are also "outright frauds cloaked in the veneer of emerging technology".
Over the past fiscal year, the SEC has "brought over a dozen stand-alone enforcement actions involving digital assets and ICOs", including one against the co-founders of a purported financial services start-up accused with allegedly orchestrating a fraudulent ICO that raised more than $32 million.
Another example involves Titanium Blockchain and its president, a self-described “blockchain evangelist,” for an alleged ICO fraud that raised as much as $21 million.
The SEC also took action against an allegedly fraudulent ICO that targeted retail investors to fund what it claimed to be the world’s first “decentralised bank”.
Another action involved a "recidivist securities law violator" and his company, who allegedly raised up to $15 million in an ICO by falsely promising a 13-fold profit in less than a month.
Beyond ICO start-ups, the agency also pursued unregistered broker-dealers, such as TokenLot, a self-described “ICO Superstore”, and its owners.
The report mentions several more similar cases, ranging from instances of outright fraud to failing to register a token as a security.
Dozens of investigations into ICOs and digital assets are also still ongoing.
If you want to take advantage of blockchain's huge potential and disruptive impact, while avoiding falling foul of ever-developing regulatory and legal requirements, visit our Hogan Lovells Engage Blockchain Toolkit.
For more news and analysis that is tailored to you, as well as access to Hogan Lovells' cutting-edge interactive Lawtech tools, register for free on Engage.
You can also keep track of all the Engage content by following our LinkedIn page.