2018: The Year of Increased SEC Enforcement, but only $36 Million of $1 Billion Returned to Investors
According to recent analysis, the US Securities and Exchange Commission (SEC) has returned a total of $36 million to harmed investors relating to digital assets. While the figure may seem small given the estimated $1 billion invested in ICOs, many feel as though 2019 will see even more regulatory enforcement. Due to the situation’s ambiguity, the digital asset industry has turned to security tokens as a compliant alternative to raise funds.
A Summary of the SEC’s Digital Asset Involvement in 2018
The digital asset community has seen more regulatory involvement in 2018 than any other year to date.
Throughout 2018, US regulators have prompted 90 stand-alone actions involving digital assets. Individuals were charged in over 70% of such cases. The increased action involves a wide array of areas to include exchanges, custody solutions, general investor fraud, and Initial Coin Offerings (ICOs).
In fact, the US SEC investigated 30 ICOs in 2018 according to the commission’s annual enforcement report, showing a stark increase from the mere 4 investigations in 2017.
Beyond federal involvement, state regulators have also increased enforcement. Colorado’s Department of Regulatory Agencies (DORA) has shut down at least 18 ICOs in 2018.
Yet despite the increased action, the SEC has returned less than $40 million to wronged investors, out of the estimated $1 billion dumped into ICOs where the SEC highlighted red flags. While the amount returned to harmed investors might seem small, many envision 2018 as a mere preparatory year concerning what’s to come.
How 2019 Looks for the Security Token Industry
The resulting situation has led many digital asset enterprises to register their tokens as securities. US SEC Chairman Jay Clayton has noted that the majority of ICOs he has seen constitute securities.
As a consequence, tokens which utilize blockchain technology and classify as a security must abide by the commission’s existing securities laws. Clayton has no intention to modify the existing laws to accommodate a new technology. Securities are securities, he says, regardless of their technological basis.
As a result of such statements, ICOs have been cancelled and businesses have turned to Security Token Offerings (STOs) as a compliant means to raise capital.
Real-world assets such as equity, real estate, fine art, and investment funds have experienced tokenization in a compliant manner. Tokenization offers significant benefits when compared to the existing structures of traditional financial securities, as explained in-depth in our comprehensive security token guide.
As 2018 comes to a close, OpenFinance Network has announced the fully operational status of its US-regulated security token trading platform. tZERO, a platform of the same type, is expected to reach such status in Q1 of 2019.
With the increased regulatory enforcement seen in 2018, the security token industry continues to develop and prepare for the highly anticipated year of 2019.
What do you think of the SEC’s increased enforcement throughout 2018? How much of the cryptocurrency industry will turn to the STO as a viable alternative for the ICO? We want to know what you think in the comments below.
Image courtesy of Bloomberg.