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Statement on NASAA’s Announcement of Enforcement Sweep Targeting Fraudulent ICOs and Crypto-asset Investment Products

Chairman Jay Clayton

May 22, 2018

I applaud our fellow regulators in the United States and Canada who are coordinating and participating in efforts to police fraud in the Initial Coin Offering (ICO) markets.  These state and provincial regulators play a critical role in protecting Main Street investors.

When investors are offered and sold securities, whether through traditional channels or through an ICO on a sales-oriented website, state and federal securities laws apply.  These laws have applied to our securities markets for over 80 years.  At their core, these laws require full and fair disclosures of material information about both the securities and the venture being funded.  Unfortunately, some market participants seem to believe that the use of new technology provides a basis for ignoring the core principles of our securities laws.  In the United States, we have built a $19 trillion dollar economy by facilitating investments in our public and private capital markets through our disclosure-based approach to regulation.  Certainly there are improvements that can be made to our regulatory system.  There always are and we are pursuing various initiatives to increase efficiency and enhance investor protection.  But there is absolutely no case for abandoning our core principles.   I know NASAA shares this view.    

The enforcement actions being announced by NASAA should be a strong warning to would-be fraudsters in this space that many sets of eyes are watching, and that regulators are coordinating on an international level to take strong actions to deter and stop fraud.    

The SEC’s Office of Investor Education and Advocacy recently launched a sample ICO website.  The offering is not real.  It is a fake.  But it does illustrate the common “red flags” of fraud in the ICO markets and how little work it takes to engage in such a fraud.  I encourage investors to visit and view the materials here to help you tell a real investment opportunity from a scam.  Also, I previously suggested a list of sample questions for investors considering a cryptocurrency or ICO investment opportunity here.  Investors should demand answers to these and other questions about potential investments. Investors should also remember that although the SEC and other federal, state, and provincial regulators are committed to protecting investors in these markets, there is a real risk that enforcement efforts may not make investors whole who have lost their investments to fraud. 

I encourage investors to read NASAA’s release here and to report potential fraud to the SEC or to your state or provincial securities regulator.  In addition to the materials cited above, the SEC maintains a list of relevant statements, investor alerts and bulletins, announcements of enforcement actions, and other helpful materials here.

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