US regulator calls for global cooperation to stop fraudulent ICOs

Initial coin offerings (ICOs) are outright frauds that need to be stopped, according to the U.S. Securities and Exchange Commission (SEC). This is why it has become hard for regulators to monitor ICOs activities in different jurisdiction because often money raised in ICOs comes from investors in America and other parts of the world.

While speaking at Harvard Law School’s Program on International Financial System, SEC Co-Director for Enforcement Division Steven Peikin noted how the ICO market has exploded from a mere concept to a phenomenon within a short period of time. In 2016, ICOs raised $100 million, while in 2018, they raised $22 billion—a 22,000% increase. The novelty of ICOs, accompanied with the excitement surrounding blockchain technology, has been a key attraction that enterprising people have been using to lure investors, according to Peikin.

The hype and growth of the  ICOs can obscure the fact that most of these offering are high-risk investments. At times, the issuers may lack established records of accomplishment. They may also not have viable products business model or proper security measures safeguarding the digital assets from hackers. Without considering all these investors are quick, to pour out their money to projects that eventually fraudulently shut down.

Peikin recalled the case of ICO fraud conducted by Canadian Dominic Lacroix, who defrauded many U.S. investors out of some $15 million by promising a 13-fold profit in less than a month. Lacroix turned out to have had a long history of doing similar financial frauds in Quebec and Canada.

Peikin believes in fighting the fraudulent activities in ICOs and the crypto space there should be global cooperation. He acknowledges collaboration between, the United stated and Canada in Operation Crypto Sweep. The operation was launched in May 2018 by the two countries, which is conducting over 70 investigations into cryptocurrency scams and fraud in ICOs. So far, the North American Securities Administrators Association has sent cease letter to operators of fraudulent crypto companies I more than forty jurisdictions in both countries.

According to Peikin, “The sponsors of ICOs are, in many instances, located outside the United States. And international cooperation is critical to our ability to investigate and, where appropriate, recommend that the Commission bring enforcement action.”

Meanwhile, SEC lawyers recently warned celebrities from endorsing ICOs to avoid being charged with fraud. A few celebrities, such as Floyd Mayweather and Dj Khaled, have already fallen victims to such fraudulent ICOs.

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US court rejects unregistered securities case against Blockvest

A court in the United States has rejected a claim brought by the Securities and Exchange Commission (SEC) against blockchain assets exchange Blockvest, in a case that could help shape precedent on unregistered securities.

SEC, the regulator tasked with upholding securities law in the U.S., accused Blockvest of promoting an unregistered security, contrary to the law. The firm’s BLV token has come in for scrutiny by the regulator, initially leading to a temporary asset freeze against the company after a preliminary order by the U.S. District Court for the Southern District of California.

However, in the latest twist in the case, a court has found that the SEC failed to demonstrate BLV tokens were unregistered securities, citing the Howey Test model for determining whether an asset falls within the remit of securities law.

According to court documents, a copy of which was secured by CCN, the court is unable to consider the BLV token a security, a material element for any asset being subject to the remit of the SEC.

“At this stage, without full discovery and disputed issues of material facts, the Court cannot make a determination whether the BLV token offered to the 32 test investors was a ‘security,’” the documents noted. “Thus, Plaintiff [the SEC] has not demonstrated that the BLV tokens purchased by the 32 test investors were ‘securities’ as defined under the securities laws.”

Judge Gonzalo P. Curiel went on to decline an application for an injunction against Blockvest, as well as several other related claims against the firm.

The development is a setback for the securities regulator, which has been increasingly active in enforcement action against fraudulent ICOs in recent months. Other cases have been more successful the regulator, with several notable examples of successful enforcement action against ICO promoters.

Just this month, Airfox and Paragon, which both raised millions through their ICOs, were ordered to repay investors, as well as a $250,000 fine each for failing to appropriately register securities, and for selling securities without being a registered dealer or agent.

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AriseBank CEO arrested by FBI over $4-million scam

Another scammer targeting the cryptocurrency space has been taken out. In a press release by the U.S. Department of Justice (DOJ) from this past Wednesday, the agency announced that the Federal Bureau of Investigation has arrested the co-founder of a crypto platform following his indictment on charges that resulted in millions of dollars in losses to a number of investors.

30-year-old Jared Rice Sr., co-founder of AriseBank, scammed investors out of more than $4 million, enticing them to invest in the “first decentralized banking platform” in the U.S. He concocted a story that the institution would offer bank accounts insured by the FDIC (Federal Deposit Insurance Corporation), as well as credit and debit cards backed by Visa. He also claimed that he had raised “$600 million within just a few weeks” through an initial coin offering (ICO). Unfortunately, everything he said was a lie.

None of the money he collected was used for its stated purpose. Instead, Rice used it to buy clothes, eat in fancy restaurants and take luxury vacations.

Rice has been charged with three counts of wire fraud and three counts of securities fraud. The U.S. Attorney for the Northern District of Texas, Erin Nealy Cox, asserts, “My office is committed to enforcing the rule of law in the cryptocurrency space. The Northern District of Texas will not tolerate this sort of flagrant deception – online or off.”

This isn’t the first time that regulators have had a run-in with Rice. This past January, he, along with the company’s co-founder, Stanley Ford, was sued by the U.S. Securities and Exchange Commission (SEC) for fraud and unlawfully issuing securities. He was also served with a cease-and-desist order from the Texas Department of Banking in relation to his activities. The SEC has also indicated, in February, that he had been on probation after being indicted in 2015 for charges related to theft and tampering with government records. A separate felony indictment also hangs over the crook in Dallas County, Texas for assault.

His next trip will be to a court to find out if he is to be convicted on all charges. If that happens, he could be sentenced to up to 120 years in federal prison.

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Bitstamp exchange wants to stamp out market manipulation

The U.S. Securities and Exchange Commission (SEC) has said that it wants to see cryptocurrency markets, including exchanges, take steps to protect investors from manipulation if exchange-traded funds (ETF) are to be approved. One exchange is already working toward cleaning up the space and has introduced a tool that will allow it to monitor the platform for market manipulation and suspicious activity.

The Bitstamp exchange has announced that it will begin to use the Irisium Surveillance platform to uncover questionable market activity. The platform, which is already used by a number of financial entities including the Asia Pacific Exchange (APEX), is partly owned by Cinnober, a tech developer for financial markets with which Bitstamp recently partnered.

Bitstamp’s founder and CEO, Nejc Kodric, stated of the inclusion of Irisium, “We are committed to crypto in the long term. Our desire is to guarantee a fair and orderly market which reflects genuine supply and demand. Exploring new frontiers in preventing market manipulation is essential for the industry to mature.”

Irisium, according to the company’s website, has created a number of tools that allow entities to monitor trading platforms and ensure compliance with European regulations, including the Markets in Financial Instruments Directive, the Market Abuse Regulation and the Regulation on Wholesale Energy Market Integrity and Transparency. The site further asserts, “The system makes available the tools and analytical data to enable regulators to identify, track and investigate any trading activity” and “is already utilized by European regulators.”

Irisium’s CEO, Alastair Goodwin, explained of the new partnership with Bitstamp, “Bitstamp’s pro-active adoption of Irisium and close partnership with us demonstrates their desire to increase transparency, integrity and confidence in the cryptocurrency market. … Enhanced customer protection and market integrity will help drive adoption and market liquidity.”

Bitstamp’s decision to use the Irisium platform was completely independent of the SEC’s statement on market manipulation. However, the timing is perfect and could, if it works as planned, allow for crypto exchanges to jump one of the hurdles that have keep institutional investors at bay. Moves such as this, coupled with the announcements made by Fidelity and NASDAQ that they are almost ready to get their crypto platforms going, should help 2019 to be an important year for the crypto industry.

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U.S. SEC waits for crypto industry changes before okaying ETFs

The chairman of the U.S. Securities and Exchange Commission (SEC) said he would like to see the cryptocurrency markets adopting similar tools overseeing the trade of traditional instruments, before being “comfortable” with allowing exchange-traded funds (ETFs) based on cryptocurrency price movements.

CNBC reported that SEC Chairman Jay Clayton, speaking at the Consensus Invest Conference in Manhattan, pointed to several aspects of the cryptocurrency industry he wanted improved. Among these was a monitoring of prices to ensure the absence of manipulation, similar to surveillance mechanisms for stock exchanges.

“Those kinds of safeguards do not exist currently in all of the exchange venues where digital currencies trade,” he claimed.

Last April, Nasdaq announced that the Winklevoss-owned Gemini exchange would be using the stock exchange company’s SMARTS market surveillance technology for its BTC futures contracts traded on Cboe’s futures exchange. Even this did not prevent the SEC from denying Gemini’s application for an ETF based on BTC futures, last July.

Clayton also said that custody for cryptocurrencies has not been sufficiently developed, with numerous high-profile thefts reported often. “We’ve seen some thefts around digital assets that make you scratch your head… We care that the assets underlying that ETF have good custody, and that they’re not going to disappear,” he said.

Currently, several companies offer custody services, with regulatory approval, such as BitGo. However, Clayton maintained that services “need to be improved and hardened.”

During the conference, Clayton also affirmed the SEC’s position on initial coin offerings (ICOs), whose tokens the agency classifies as securities under its control. He addressed companies holding ICOs to “start with the assumption that you’re starting with a securities offering.”

The commission regularly publicizes its issuing of cease-and-desist orders to companies that fail to register with it. It has also recently positioned itself against developers of smart contracts, on the assumption that they are providing a trading facility.

The SEC has not decided on the ETF application of VanEck Solidx, which it had said it would do by September 30. It has likewise refrained from a final ruling on other applications.

The lone dissenter to the commission’s rejecting of Gemini’s application, Commissioner Hester Peirce, has remained outspoken on the need for the SEC to step aside and allow for the innovation of financial products, subject to the same regulations as other investments. At the Crypto Valley summit in Zug, Switzerland, she delivered a video speech stating that she was “working on convincing my colleagues” to favor an approach allowing well-informed investors to choose whether or not to buy a cryptocurrency-based product.

She also noted how the Commodity Futures Trading Commission has been open to cryptocurrency derivatives, and that the SEC itself was holding various events regarding digital asset technologies, which made her “hopeful.”

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US SEC takes position against developers of smart contracts

It’s said that just because it looks good on paper, doesn’t mean it looks good in practice. This adage could hold true, in a way, for smart contracts. While they aren’t actually written on paper, their original design is proving to enjoy a more theoretical victory than a real-life one. Nick Szabo, who was originally behind smart contracts, has started to question if they make sense and even Ethereum’s Vitalik Buterin is someone turned off to them. Now, it appears that the U.S. Securities and Exchange Commission (SEC) isn’t behind them, either, and could actually prosecute someone who develops a smart contract – even if that person doesn’t use it.

In its Statement on Digital Asset Securities Issuance and Trading, which was published last Friday, the SEC asserts that a smart contract provides “the means for investors and market participants to find counterparties, discover prices, and trade a variety of digital asset securities.” It made several references to the contracts, pointing out how it has already prosecuted someone, Zachary Coburn, for “operating an unregistered securities exchange” using smart contracts that he had coded.

Coburn ran the Etherdelta decentralized exchange (DEX) and was fined $400,000 by the SEC. While the case seems to be straightforward – he was operating an exchange without approval – there’s more to it than that.

According to the Friday statement, the SEC states, “An entity that provides an algorithm, run on a computer program or on a smart contract using blockchain technology, as a means to bring together or execute orders, could be providing a trading facility. As another example, an entity that sets execution priorities, standardizes material terms for digital asset securities traded on the system, or requires orders to conform with predetermined protocols of a smart contract, could be setting rules.”

Therefore, someone who develops a smart contract could potentially be held liable for any activity that takes place on the contract. If computer code was once viewed as a form of free speech in the U.S., those days could be over.

Szabo recognizes the issue smart contracts are facing and suggests that he understands how a smart contract developer could be held liable. He said in a Twitter post last Friday, “‘Smart contract’ like ‘contract’ connotes a deal between people, but a deal intermediated and incentivized by dynamic machine-interpreted rules instead of the statically recorded human-interpreted rules of a traditional contract.”

Based on the stance of the SEC, which will certainly grow bolder moving forward, it would appear that smart contracts aren’t so smart, after all.

Note: Tokens on the Bitcoin Core (segwit) Chain are Referred to as BTC coins. Bitcoin Cash (BCH) is today the only Bitcoin implementation that follows Satoshi Nakamoto’s original whitepaper for Peer to Peer Electronic Cash. Bitcoin BCH is the only major public blockchain that maintains the original vision for Bitcoin as fast, frictionless, electronic cash.

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Ohio lawmaker eyes bill allowing ICOs to ‘sidestep’ securities laws

A congressman in Ohio is preparing a bill that will regulate initial coin offerings (ICOs) in the same way as any other product as a means of “sidestepping” U.S. securities laws, according to a Washington Examiner report.

Republican Rep. Warren Davidson, of the 8th district of the state of Ohio, is reportedly weighing up a prospective bill which would treat ICOs as a type of product, rather than a form of security, thereby reducing the influence and oversight of the Securities and Exchange Commission (SEC).

The bill would aim to apply at both state and federal level, which would allow companies to avoid engaging with securities laws when launching ICO projects.

While Davidson is reported to be seeking bipartisan support, local media reports suggest this is unlikely, in light of the number of incoming Democrats into the House of Representatives, who would be expected to vote against deregulatory proposals.

Nevertheless, the bill would complement the recent tendency of crypto and blockchain firms to turn to venture capital (VC) funding rather than ICOs, in a bid to circumvent the complexities of securities laws and the increasingly stringent oversight of the SEC.

From the beginning of the year, SEC Chairman Jay Clayton has led the regulator through its initial attempts to enforce securities laws on ICOs, after suggesting that every ICO the regulator had ever seen could be defined as a security.

While several commissioners have sought to soften the position since, the proactive enforcement of the SEC is reported to have driven companies away from the ICO model, with private equity being used to raise funds without the same regulatory burden and legal uncertainty.

If the bill becomes law, it would allow crypto firms to use ICOs without concern for the SEC’s definition of ‘securities’, delivering more flexibility to companies choosing to use the ICO funding model, rather than pursuing alternative routes to capital.

The proposals come a matter of weeks after Davidson hosted some 45 delegates from the cryptocurrency and financial sectors, as part of a ‘crypto roundtable’ to discuss regulatory issues.

Note: Tokens on the Bitcoin Core (segwit) Chain are Referred to as BTC coins. Bitcoin Cash (BCH) is today the only Bitcoin implementation that follows Satoshi Nakamoto’s original whitepaper for Peer to Peer Electronic Cash. Bitcoin BCH is the only major public blockchain that maintains the original vision for Bitcoin as fast, frictionless, electronic cash.

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Ohio lawmaker eyes bill allowing ICOs to ‘sidestep’ securities laws

A congressman in Ohio is preparing a bill that will regulate initial coin offerings (ICOs) in the same way as any other product as a means of “sidestepping” U.S. securities laws, according to a Washington Examiner report.

Republican Rep. Warren Davidson, of the 8th district of the state of Ohio, is reportedly weighing up a prospective bill which would treat ICOs as a type of product, rather than a form of security, thereby reducing the influence and oversight of the Securities and Exchange Commission (SEC).

The bill would aim to apply at both state and federal level, which would allow companies to avoid engaging with securities laws when launching ICO projects.

While Davidson is reported to be seeking bipartisan support, local media reports suggest this is unlikely, in light of the number of incoming Democrats into the House of Representatives, who would be expected to vote against deregulatory proposals.

Nevertheless, the bill would complement the recent tendency of crypto and blockchain firms to turn to venture capital (VC) funding rather than ICOs, in a bid to circumvent the complexities of securities laws and the increasingly stringent oversight of the SEC.

From the beginning of the year, SEC Chairman Jay Clayton has led the regulator through its initial attempts to enforce securities laws on ICOs, after suggesting that every ICO the regulator had ever seen could be defined as a security.

While several commissioners have sought to soften the position since, the proactive enforcement of the SEC is reported to have driven companies away from the ICO model, with private equity being used to raise funds without the same regulatory burden and legal uncertainty.

If the bill becomes law, it would allow crypto firms to use ICOs without concern for the SEC’s definition of ‘securities’, delivering more flexibility to companies choosing to use the ICO funding model, rather than pursuing alternative routes to capital.

The proposals come a matter of weeks after Davidson hosted some 45 delegates from the cryptocurrency and financial sectors, as part of a ‘crypto roundtable’ to discuss regulatory issues.

Note: Tokens on the Bitcoin Core (segwit) Chain are Referred to as BTC coins. Bitcoin Cash (BCH) is today the only Bitcoin implementation that follows Satoshi Nakamoto’s original whitepaper for Peer to Peer Electronic Cash. Bitcoin BCH is the only major public blockchain that maintains the original vision for Bitcoin as fast, frictionless, electronic cash.

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Ohio lawmaker eyes bill allowing ICOs to ‘sidestep’ securities laws

A congressman in Ohio is preparing a bill that will regulate initial coin offerings (ICOs) in the same way as any other product as a means of “sidestepping” U.S. securities laws, according to a Washington Examiner report.

Republican Rep. Warren Davidson, of the 8th district of the state of Ohio, is reportedly weighing up a prospective bill which would treat ICOs as a type of product, rather than a form of security, thereby reducing the influence and oversight of the Securities and Exchange Commission (SEC).

The bill would aim to apply at both state and federal level, which would allow companies to avoid engaging with securities laws when launching ICO projects.

While Davidson is reported to be seeking bipartisan support, local media reports suggest this is unlikely, in light of the number of incoming Democrats into the House of Representatives, who would be expected to vote against deregulatory proposals.

Nevertheless, the bill would complement the recent tendency of crypto and blockchain firms to turn to venture capital (VC) funding rather than ICOs, in a bid to circumvent the complexities of securities laws and the increasingly stringent oversight of the SEC.

From the beginning of the year, SEC Chairman Jay Clayton has led the regulator through its initial attempts to enforce securities laws on ICOs, after suggesting that every ICO the regulator had ever seen could be defined as a security.

While several commissioners have sought to soften the position since, the proactive enforcement of the SEC is reported to have driven companies away from the ICO model, with private equity being used to raise funds without the same regulatory burden and legal uncertainty.

If the bill becomes law, it would allow crypto firms to use ICOs without concern for the SEC’s definition of ‘securities’, delivering more flexibility to companies choosing to use the ICO funding model, rather than pursuing alternative routes to capital.

The proposals come a matter of weeks after Davidson hosted some 45 delegates from the cryptocurrency and financial sectors, as part of a ‘crypto roundtable’ to discuss regulatory issues.

Note: Tokens on the Bitcoin Core (segwit) Chain are Referred to as BTC coins. Bitcoin Cash (BCH) is today the only Bitcoin implementation that follows Satoshi Nakamoto’s original whitepaper for Peer to Peer Electronic Cash. Bitcoin BCH is the only major public blockchain that maintains the original vision for Bitcoin as fast, frictionless, electronic cash.

The post Ohio lawmaker eyes bill allowing ICOs to ‘sidestep’ securities laws appeared first on Coingeek.

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Ohio lawmaker eyes bill allowing ICOs to ‘sidestep’ securities laws

A congressman in Ohio is preparing a bill that will regulate initial coin offerings (ICOs) in the same way as any other product as a means of “sidestepping” U.S. securities laws, according to a Washington Examiner report.

Republican Rep. Warren Davidson, of the 8th district of the state of Ohio, is reportedly weighing up a prospective bill which would treat ICOs as a type of product, rather than a form of security, thereby reducing the influence and oversight of the Securities and Exchange Commission (SEC).

The bill would aim to apply at both state and federal level, which would allow companies to avoid engaging with securities laws when launching ICO projects.

While Davidson is reported to be seeking bipartisan support, local media reports suggest this is unlikely, in light of the number of incoming Democrats into the House of Representatives, who would be expected to vote against deregulatory proposals.

Nevertheless, the bill would complement the recent tendency of crypto and blockchain firms to turn to venture capital (VC) funding rather than ICOs, in a bid to circumvent the complexities of securities laws and the increasingly stringent oversight of the SEC.

From the beginning of the year, SEC Chairman Jay Clayton has led the regulator through its initial attempts to enforce securities laws on ICOs, after suggesting that every ICO the regulator had ever seen could be defined as a security.

While several commissioners have sought to soften the position since, the proactive enforcement of the SEC is reported to have driven companies away from the ICO model, with private equity being used to raise funds without the same regulatory burden and legal uncertainty.

If the bill becomes law, it would allow crypto firms to use ICOs without concern for the SEC’s definition of ‘securities’, delivering more flexibility to companies choosing to use the ICO funding model, rather than pursuing alternative routes to capital.

The proposals come a matter of weeks after Davidson hosted some 45 delegates from the cryptocurrency and financial sectors, as part of a ‘crypto roundtable’ to discuss regulatory issues.

Note: Tokens on the Bitcoin Core (segwit) Chain are Referred to as BTC coins. Bitcoin Cash (BCH) is today the only Bitcoin implementation that follows Satoshi Nakamoto’s original whitepaper for Peer to Peer Electronic Cash. Bitcoin BCH is the only major public blockchain that maintains the original vision for Bitcoin as fast, frictionless, electronic cash.

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