In a speech at the Securities Regulation Institute yesterday, U.S. SEC Chairman Clayton delivered some pretty blunt (and, according to the Commissioner, “stern”) words to lawyers and other professionals. He said that market professionals need to act responsibly and hold themselves to a higher standard; in the realm of ICOs, he said, “they can do better.”
Talking specifically about lawyers, he commented:
First, and most disturbing to me, there are ICOs where the lawyers involved appear to be, on the one hand, assisting promoters in structuring offerings of products that have many of the key features of a securities offering, but call it an “ICO,” which sounds pretty close to an “IPO.” On the other hand, those lawyers claim the products are not securities, and the promoters proceed without compliance with the securities laws, which deprives investors of the substantive and procedural investor protection requirements of our securities laws.
Second are ICOs where the lawyers appear to have taken a step back from the key issues – including whether the “coin” is a security and whether the offering qualifies for an exemption from registration – even in circumstances where registration would likely be warranted. These lawyers appear to provide the “it depends” equivocal advice, rather than counseling their clients that the product they are promoting likely is a security. Their clients then proceed with the ICO without complying with the securities laws because those clients are willing to take the risk.
Chairman Clayton also warned that he had instructed SEC staff to be on high alert for approaches to ICOs that may be contrary to “the spirit” of the securities laws and the professional obligations of the securities bar.
In a final comment about cryptocurrency, Mr. Clayton said that the SEC was looking closely at the public companies that had recently changed their names or business models to try to capitalize on the use of (or perceived use of) blockchain technology.