The U.S. Securities and Exchange Commission (SEC) announced the creation of a new cyber task force designed to target cyber-related misconduct and protect retail investors from cyber threats. Among other things, the unit will target initial coin offerings (ICOs) and other blockchain-based projects that run afoul of SEC regulations.
The SEC announced the new cyber unit in a press release, stating that the task force will “focus on the Enforcement Division’s substantial cyber-related expertise on targeting cyber-related misconduct.” Specifically, this unit will target threats to the securities market such as market manipulation, hacking, dark web misconduct, intrusions into retail brokerage accounts, and threats to exchanges and other market infrastructure. Notably, the task force will also investigate “violations involving distributed ledger technology and initial coin offerings.”
That the SEC will scrutinize ICOs more closely should not be surprising. Earlier this month, SEC executives revealed that they perceive threats to retail investors within the ICO marketplace, noting that “with any kind of newsworthy event, roaches kind of crawl out of the woodwork and try to scam money off of investors.”
“Protecting the welfare of the Main Street investor has long been a priority for the Commission,” added Steven Peikin, Co-Director of the SEC’s Enforcement Division. “By dedicating additional resources and expertise to developing strategies to address misconduct that victimizes retail investors, the division will better protect our most vulnerable market participants.”
Indeed, the commission has apparently begun to put pressure on U.S.-based ICOs it considers securities. Protostarr, a startup that promised the ability to use crypto tokens to invest in internet celebrities and receive dividends from advertising revenue raised on the stars’ YouTube and Twitch channels, canceled its ICO after the agency informed the company’s CEO that it was investigating Protostarr for violations of securities regulations. It is not clear whether the SEC has begun to investigate any other specific ICOs.
Recognizing that regulators are taking a more active look into the booming ICO markets, Overstock subsidiary tZero has formed a joint venture with RenGen LLC and the Argon Group to launch the first FINRA- and SEC-compliant ICO marketplace. The company states that this exchange will allow startups to embrace the "security" classification, opening the door for increased institutional investments within the cryptocurrency industry.
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