SEC chairman Jay Clayton urges investors to exercise 'extreme caution' around ICOs

Securities and Exchange Commission logo adorns an office door at the SEC headquarters in Washington

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Clayton warned investors to ask several questions before investing in cryptocurrencies or "initial coin offerings" (ICOs), including "are there substantial risks of theft or loss, including from hacking?" and "is the offering legal?" "This extends, for example, to securities firms and other market participants that allow payments to be made in cryptocurrencies, set up structures to invest in or hold cryptocurrencies, or extend credit to customers to purchase or hold cryptocurrencies". "Because of these and other company activities, investors would have had a reasonable belief that their investment in tokens could generate a return on their investment", the SEC says. The SEC told investors that no ICOs have been registered with the financial regulator and that it has not approved for listing and trading any exchange-traded products (such as ETFs) holding cryptocurrencies or other assets related to cryptocurrencies.

Regulators around the world are becoming increasingly concerned with the popularity of ICOs.

In a 2,300-word statement on Monday, SEC chairman Jay Clayton said that his agency was warily watching the spike in interest, which has led bitcoin to rise to more than $17,000 as of Monday afternoon.

And in a move closely watched by industry observers, Clayton reiterated that he had no patience for those who argue that the physical token - the object given to investors who participate in an initial coin offering - is not a security, and that ICOs should therefore be exempt from the SEC's normal securities law.

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Last month, Trump retweeted a number of anti-Muslim messages from far right political group Britain First and was rebuked by May. "I think the way he looks at it is that security is his number one oath, it's protecting Americans".

Coin offerings often receive investments in the form of cryptocurrency like Bitcoin, which has soared to meteoric heights.

The operation was being conducted by Munchee, which was looking to raise $15 million in capital from selling such digital tokens. It launched its initial coin offering (ICO) on October 31, 2017 and terminated it the next day within hours of being contacted by the SEC.

Clayton contended that the SEC will require most ICOs to follow exactly the same laws as traditional securities, with procedural, disclosure and registration rules being the same. Therefore, it went on, the token is considered "a security based on the long-standing facts and circumstances test that includes assessing whether investors' profits are to be derived from the managerial and entrepreneurial efforts of others".

Stephanie Avakian, co-director of the SEC's enforcement division, said: "We will continue to scrutinise the market vigilantly for improper offerings that seek to sell securities to the general public without the required registration or exemption". "In deciding not to impose a penalty, the Commission recognized that the company stopped the ICO quickly, immediately returned the proceeds before issuing tokens, and cooperated with the investigation".

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