The U.S. Securities and Exchange Commission (SEC) has subpoenaed 80 cryptocurrency companies, including the $100 million cryptofund of TechCrunch founder Michael Arrington, according to CNBC.
Arrington told CNBC Thursday that he has received a subpoena, as has every cryptofund he has spoken to.
Arrington said he has no problem with the subpoena. He said the government has to figure out its rules for the market to follow.
It remains undetermined whether securities laws apply to digital coins. While the SEC has said digital coins are subject to regulations, it has not indicated how digital coin developers can comply with the regulations. As a result, cryptocurrency firms have had to rely on lawyers to distinguish their companies from cryptocurrency scams.
In some cases, cryptocurrency companies have chosen to ban U.S. investors from participating in their offerings on account of the legal uncertainties.
The SEC has sought more information about cryptocurrencies in the last year as the market has drawn billions of dollars. This past Wednesday, The Wall Street Journal reported the SEC has issued scores of subpoenas regarding new digital coins.
Jason Gottlieb, a partner and head of the cryptocurrency litigation team at Morrison Cohen, said SEC offices in New York, Boston and San Francisco has issued subpoenas. Another source confirmed these locations.
Gottlieb, who is representing PlexCorps, a company facing SEC fraud charges, said the overall SEC investigation will continue throughout the year.
A source claimed about 80 firms have been subpoenaed thus far.
The SEC did not respond to a CNBC request for comment.
SEC investigations, along with regulatory uncertainty, have driven some cryptocurrency activities offshore, Arrington said. He said it is a shame that the U.S. has “frozen itself.”
From an investor’s point of view, Arrington said he has become more interested in projects from China and nearby Asian countries, characterizing them as “uniformly high quality.”
Regulators in different countries have taken different approaches to cryptocurrencies.
China banned ICOs in September. Japan licensed cryptocurrency exchanges in April, while South Korea banned anonymous trading accounts in late January.
William Mougayar, a blockchain investor and the author of a book, “The Business Blockchain,” said he hopes the SEC doesn’t classify tokens, since it would be a “slippery slope.” He said it would make more sense to focus on well defined disclosures without being overly restrictive.
ICOs raised more than $5 billion last year alone, according to Autonomous Next. Such offerings, however, hardly exist beyond a whitepaper posting.
Jay Clayton, chairman of the SEC, has penned an op-ed along with the chairman of the Commodity Futures Trading Commission stating that the SEC is devoting major resources to the ICO market. The commission released an investor bulletin over the summer warning about dangers posed by ICOs.
Gottlieb expects a “hodgepodge of court decisions” to result from the SEC investigation rather than laws or regulations which would require more time to develop. He said the Supreme Court may have to be involved to resolve some questions.
Whether or not an asset is a security is usually guided by the “Howey Test,” based on a 1946 Supreme Court case.
Ryan Schoen, a senior financial services policy analyst at Washington Analysis, said the subpoenas will likely result in some tokens found to be unregistered securities.
The exchanges involved in trading unregistered securities will likely be next to fall under SEC scrutiny, Schoen said.