During an ABA Section of Litigation Sound Advice podcast, Regulatory Fundamentals of Cryptocurrency, Fenwick securities enforcement co-chair Michael Dicke offered an overview of key enforcement actions in the field of digital currency, including those related to initial coin offerings, and what listeners can expect next.
Following the U.S. Securities and Exchange Commission’s release of an investigative “DAO report” in July 2017, the agency began a series of nonpublic investigations of token offerings and brought its first enforcement case against two allegedly fraudulent ICOs in September 2017—REcoin Group Foundation and Diamond Reserve Club.
“What’s significant about that case is that these were essentially scams with no real backing behind the ICOs, and so they’re in some ways the first low-hanging fruit the SEC went after, as one would expect.”
Following those actions, the SEC has continued bringing actions against unregistered and/or fraudulent ICOs.
“Officials at the SEC have made it very clear that they believe that the ICOs they have seen all involved unregistered securities offerings,” Dicke said. “They have warned that the SEC will be filing more actions targeting the unregistered offerings and, in the case of fraud, targeting fraudulent offerings.”
He cited a number of “firsts” in the arena:
- In December, the SEC announced it filed an emergency action to freeze the proceeds and halt an ICO scam called PlexCoin, freezing about $15 million in funds raised.
- In a more significant move that same month, the SEC stepped in to stop an ongoing unregistered multi-million dollar offering called Munchee—the first case in which an ICO was stopped before any tokens were issued and the first in which the SEC did not allege the offering was fraudulent.
- The controversial Tezos ICO drew the first private securities class actions filed in various parts of the country by investors alleging fraud and unregistered SEC offerings.
Another private action was filed against an ICO in recent weeks. “There’s a lot of speculation that more and more ICO’s will draw private class actions and private securities suits.”
Dicke has co-authored Fenwick articles looking at the SEC’s increased scrutiny of unicorns and other private companies and the secondary market trading of pre-IPO shares, as well as the SEC’s first enforcement action resulting from a Rule 701 option grants investigation. He is co-chair of the ABA’s subcommittee on securities enforcement.
The full recording is available through the ABA website (member login required).