(Behind WSJ paywall, archived linked available here)
The big news of the week is that the SEC has been (not so) quietly turning up the pressure over the past few weeks and months: it was reported that up to 80 companies and individuals on both coasts have received subpoenas and information requests in relation to their involvement with ICOs and pre-sales, and not just the issuers but also advisors, law firms, exchanges and investors. Remember that angry (now deleted) Twitter rant
from Mike Arrington? Yep, he got one
This is consistent with the message
that Chairman Clayton sent at the Senate testimony a couple of weeks ago, when he made the point that "gatekeepers" are as responsible as issuers when it comes to securities law:"I believe that gatekeepers and others, including securities lawyers, accountants and consultants, need to focus on their responsibilities. I have urged these professionals to be guided by the principal motivation for our registration, offering process and disclosure requirements: investor protection and, in particular, the protection of our Main Street investors"
This frankly should come at no surprise to most industry insiders, as the SEC has been ringing the alarm bell for quite some time now (the DAO Report dates June 2017) and taken selected enforcement actions already (e.g. Munchee, AriseBank). Many projects got cold feet as a result, which is probably why we've experienced such a dramatic drop
in public ICOs recently (with money piling in private rounds). Perhaps what's unprecedented is how broadly and deeply the sweep seems to be extending, going well beyond the issuers themselves with 25-page documents
requesting "every bit of communication around the token launch."What to expect now?
For now the SEC is gathering information and quite possibly using the subpoena tool to cool off the market, while taking select enforcement actions. We'll now have to wait and see what comes next to judge the ultimate impact of the sweep.
Like it or not though, the wave of regulated ICOs / security tokens and exchanges is upon us.
We should also expect decentralized exchanges to pick up some of the slack from their centralized versions that will likely be forced to delist tokens, while others will just die off of illiquidity or protracted litigation. Alternative jurisdictions like Switzerland (whose regulator has just stated
some utility tokens do not fall under security regulations) should see increased popularity with founders.