A top enforcement official with the Securities and Exchange Commission says many so-called "initial coin offerings" launching new cryptocurrencies are, in fact, securities offerings in disguise. And that could be putting investors at risk.
"They're raising a lot of money, but they're not complying with the rules that are in place to protect investors," said Valerie Szczepanik, SEC assistant director of enforcement and head of the agency's working group on cryptocurrencies.
Szczepanik spoke at a conference in New York on "The Future of Financial Fraud," staged by the University of California-Berkeley's Center for Law and Business.
Roughly $9.8 billion has been raised through ICOs since 2016, according to financial research firm Autonomous Next. About $3.5 billion was raised in the first three months of 2018 alone.
While Szczepanik did not single out any specific ICO, she said all too many are designed not to launch the currency but to raise money for the company behind it and allow investors to speculate — the very definition of a security under the law.
"What we're seeing is the issuance of these tokens before a platform is built," she said.
Yet she said they are not providing some of the basic transparency and disclosure required under the law.