The SEC recently released a stream of rulings versus ICOs such as AirFox and Paragon, but, the regulatory body’s actions on exchanges have a more substantial, short-term effect which could drive new investments to the asset class
On 19 November, news of the settlements between the SEC and ICOs CarrierEQ (AirFox) and Paragon circulated. In a public statement released by the SEC, the said ICOs are culpable for failing to register their token issues as securities, rather than fraudulent activities.
According to CoinDesk’s Institutional Crypto newsletter, SEC actions like this are not only about ICOs but also about, and to a greater extent, exchanges.
SEC Statement and Settlement with the exchange EtherDelta
On 9 November came the SEC’s first enforcement effort against an exchange. The agency implicated EtherDelta for infringing securities laws by neglecting to register the exchange. A settlement where EtherDelta founder Zachary Coburn agreed to pay fines, interests, and penalties was reached.
With the statement regarding this case, the SEC defined what is deemed an exchange and what conditions call for an exchange to register.
Last month, the Office of the Attorney General (OAG) in New York released the results of its fact-finding investigation on cryptocurrency exchanges. The result suggested that crypto-trading platforms pose an added risk to investors by functioning as the venue for trading and, at the same time, acts as a broker-dealer.
The newsletter quoted from the OAG result which states that exchanges have not registered with the SEC:
And this statement, according to the newsletter, indicated what was to come to exchanges.
Both governmental agencies, the SEC and OAG, are set to protect investors.
Advancement of Digital Assets
In closing, the newsletter states that the process of registering exchanges will disrupt current business models. The added paperwork and compliance requirements will also add costs for trading platforms.
But more robust infrastructure may result from this oversight that can go hand-in-hand with governmental regulators. This may bring clarity and new investments to the asset class.