International Cooperation ‘Critical’ to Bringing Illegal ICOs to Justice: SEC
International cooperation is essential for eradicating ICO fraud,
said Steven Peikin, co-director of the Securities and Exchange Commission’s enforcement division. Peikin made the remarks during a December 3 speech at Harvard Law School’s Program on International Financial Systems, where he discussed the astonishing growth of the ICO market. “The sponsors of ICOs are, in many instances, located outside the United States,” Peikin said. “And international cooperation is critical to our ability to investigate and, where appropriate, recommend that the Commission bring enforcement action.”
ICOs Have Spiked 22,000% Since 2016
Peikin noted that the ICO market has “exploded from a mere concept to a phenomenon” in just a few short years. In 2016, ICOs raised less than $100 million. In 2018, that figure skyrocketed to more than $22 billion — a spike of 22,000%. With that rapid growth has come a massive increase in fraudulent activity. Complicating matters for regulators is that the money raised in initial coin offerings often comes from investors both inside and outside the United States.
Peikin noted that the novelty of ICOs — coupled with the excitement surrounding blockchain technology — makes them an alluring vehicle for investors. This exuberance can sometimes blind them to the risks associated with this nascent asset class, he warned.
Peikin: ‘Some ICOs are Outright Frauds’
“The growth in the ICO market can obscure the fact that these offerings are often high-risk investments,” Peikin said. “The issuers may lack established track records. They may not have viable products, business models, or the capacity for safeguarding digital currencies from theft by hackers. And some of the offerings can be simply outright frauds.”
Steven Peikin then alluded to the example of PlexCoin founder Dominic Lacroix, a Canadian citizen who fleeced as much as $15 million from thousands of US investors for his sham ICO by promising a 13-fold profit in less than a month. The SEC learned from Canadian authorities that Lacroix had a long history of running similar financial scams in Quebec.
In May 2018, US and Canadian regulators launched over 70 investigations into cryptocurrency scams and fraudulent initial coin offerings as part of a wide-ranging crackdown called “Operation Crypto Sweep". As CCN reported, the North American Securities Administrators Association sent cease-and-desist letters to operators of sham crypto companies in more than 40 jurisdictions across the United States and Canada.
Operation Crypto Sweep Targets Scams
Operation Crypto Sweep came shortly after a finding that fraud was alarmingly widespread among crypto investment promoters. Securities attorneys have also warned celebrities who endorse ICOs that they could be sued for aiding and abetting fraud if they promote sham crypto products. Last week, that warning turned into a rude awakening for boxing champ Floyd Mayweather and music producer DJ Khaled, when they were fined a combined $767,500 by the SEC for illegally promoting ICOs.
These regulatory crackdowns — combined with the current bear market — have led some industry insiders to declare that the ICO market is dead.“The ICO market is dead — over,” said Barry Silbert, founder of crypto investment fund Digital Currency Group. “You now have the lack of demand from ICOs. And you have all the sponsors of the ICOs who raised a bunch of bitcoin [and ether] that are now starting to sell that.”Even though he believes that ICO mania is over, Silbert remains bullish about the future of the cryptocurrency industry, and he called the current market downturn an “awkward transition” that will pass
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