In 2018 the U.S. Securities and Exchange Commission  (SEC) decided that both Bitcoin and Ethereum were not securities.  Bitcoin was determined to be a store of value or currency replacement, while Ethereum’s token, Ether, that is used by the platform was not deemed a security.

The SEC’s Enforcement Division position is that “…companies that issue securities through ICOs are required to comply with existing statutes and rules governing the registration of securities.”  Investigations in to cryptocurrencies are conducted by the Enforcement Division’s Cyber Unit.

A listing of SEC cryptocurrency investigations show their Cyber Unit has been quite active pursuing Initial Coin Offerings (ICOs or capital raises).  The majority of violations investigated by the Cyber Unit deal with unregistered securities, that companies are:

“engaged in securities fraud in violation of Section 17(a) of the Securities Act of 1933 (“Securities Act”) [15 U.S.C. § 77q(a)], Section 10(b) of the Securities Exchange Act of 1934 (the “Exchange Act”) [15 U.S.C. § 78j(b)] and Rule 10b-5 thereunder [17 C.F.R. § 240.10b-5]; and in the unregistered offer and sale of securities in violation of Sections 5(a) and 5(c) of the Securities Act [15 U.S.C.§§ 77e(a) and 77e(c)].”

A listing of companies investigated by the SEC, their violations and Penalties are listed in the table below.

The SEC has investigated many ICOs that failed to register their tokens as securities.  In mid-2018 The SEC issued subpoenas to 80 cryptocurrency firms as part of its ongoing inquiry into the digital asset market.

Conclusion

The SEC’s main concern has been initial coin offerings (ICOs) and whether they satisfy the criteria for U.S. federal securities laws.

Eric Grant a private altcoin investor stated that, “it seems that most of SEC’s action lead to crypto prices plummeting”.  The SEC monetary fines and penalties have a negative effect on the cryptocurrency price. Projects with active development teams and enough reserve funds, such as Block.one  (EOS token), appear to weather the SEC investigation and recover.  

Essentially re-categorizing projects as securities simply means that the company and its digital asset must follow existing U.S. rules and regulations.

Many of the companies investigated incur a monetary penalty from the SEC.  In less than two years the SEC has collected approximately $68 million USD from its investigations of cryptocurrency tokens and companies.  The SEC has stated publicly that it intends to use some of the collected money to indemnify investors who suffered damages.  However, there appears to be very little accounting of what happens to the seized assets and collected fines.   

A lot more transparency from the SEC is needed regarding how it deals with the money it collects, on behalf of the investors it seeks to protect through its mandate.