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    Anna Key

    New Inquisition From SEC: Witch Hunt Continues

    SEC Crypto Regulations
    From this review, you will learn the U.S. Securities and Exchange Commission (SEC) attitude to the blockchain and cryptocurrency market in general, which currencies can feel confident in the US market, which ICO the Commission does not allow, and why it does so.

    SEC General Crypto Policy

    In the field of cybersecurity and cryptocurrencies, the U.S. Securities and Exchange Commission (SEC) is quite active. The SEC point of view is expressed in 5 main nuances:

    • ICO may be unregistered securities.
    • Such securities must be registered, otherwise, they will be outlawed.
    • Tokens can be called whatever you like, but if they have signs of securities, then SEC should deal with them.
    • The release of tokens can carry risks and can contain signs of frauds and manipulations.

    An important role in assessing whether a particular cryptocurrency belongs to securities is played by a special framework from the SEC. A number of criteria for token issuing are checked there: the expectation of income from the token, the level of (de)centralization, the impact on the market of digital assets.

    The tokens aren't considered as securities if it fits the next criteria:

    • The decentralized part of the token works and allows transactions.
    • The token is used not only for market speculation.
    • A token can be considered as an asset to preserve value (the role of a financial instrument).

    In December 2017, the Commission represented by Chairman Jay Clayton made one of the most significant statements regarding its position on cryptocurrencies and ICOs. Recognizing the significant contribution of the new blockchain technology to investment opportunities, the Commission calls for careful study of the subject of the transaction and provides an approximate list of issues that will help to ensure the safety and legality of this investment.

    At the end of 2018 two cryptocurrency startups — CarrierEQ Inc. and Paragon Coin Inc. — agreed (under pressure from the regulator) to register tokens issued during the ICO as securities. They also had to pay fines of $250 thousand.

    The commission intends to tighten the control. In its annual report, OCIE SEC (Office of Compliance Inspections and Examinations) makes it clear that cryptocurrencies are considered as the priority areas of SEC supervision for 2020. For this, the commission will identify and verify market participants.

    Back in 2019, John Reed Stark, Former Chief of SEC Office of Internet Enforcement, stated with absolute certainty that he was confident that the U.S. regulators would eventually drive cryptocurrencies out of the U.S. financial market. He writes: "Much of Bitcoin’s value, outside of mere speculation, is derived solely from its ability to facilitate criminal activity."

    Nevertheless, the Commission is rather supportive of blockchain technology in general. So, in February 2020, the SEC proposed creating a “safe haven” for blockchain projects, with the initiative of Commissioner Hester Peirce.

    On the special page "Cyber ​​Enforcement Actions" all enforcement decisions in this area are made. The first cybersecurity solutions date back to 2012. There are more than a hundred of them and they are divided into sections. Violations in working with cryptocurrencies (according to the SEC, such placements are "unregistered or fraudulent") are found in two sections of this list: Digital Assets & ICOs and Trading Suspensions.

    The COVID-19 pandemic made temporary adjustments: until the end of summer 2020, the SEC simplified the rules for crypto blockchain firms that use crowdfunding. At the same time, liability for violation of the rules of the Regulator is still on them.

    SEC Investigation vs. DAO

    The first signal of what fate awaits almost all ICOs in the USA appeared in July 2017. The SEC published the results of the investigation into the DAO crypto project, in which it first called the cryptocurrency “securities”. This could be regarded as a direct warning: all such offers in the USA without registering tokens in the SEC would be a violation of American laws.

    SEC vs. TON

    The most high-profile case, which ended with the SEC triumphant victory, is without a doubt the SEC vs. TON trial. We described this process against the ICO attempt of the blockchain system by Pavel Durov in one of our detailed reviews. TON surrendered in May 2020. This was written on the official channel by Pavel Durov. It is noteworthy that the SEC is absolutely sure that Durov knew that TON ICO was illegal.

    SEC attitude to Bitcoin

    The SEC considers the risk of manipulation as a key factor that keeps the regulator from approving applications for Bitcoin-ETF. Nevertheless, the Regulator believes that the appearance of Bitcoin on classic exchanges is possible, but only after reaching the necessary level of regulation in the cryptocurrency field. The Howey test showed no sign of Bitcoin's security, as was the case with TON.

    The SEC has issued permission to launch the NYDIG (New York Digital Investment Group) Bitcoin Strategy Fund based on Bitcoin futures managed by Stone Ridge. The argument to this decision: the fund plans to invest in Bitcoin futures only with fiat funds, which reduces the risk of manipulation. However, for more than a year, the Commission has not allowed launching a single Bitcoin-ETF fund.

    SEC attitude to Libra

    Under pressure from SEC, the key partners (PayPal, Visa and Mastercard, eBay, Stripe, and Mercado Pago) left this Facebook project. Visa is going to return to the Libra Association if it satisfies all the requirements of all the regulators.

    More recently, the updated White Paper from Libra was released. It was redesigned to strengthen the position of this cryptocurrency, but the future of Libra is still foggy so far.

    SEC attitude to Ethereum

    Ethereum had no essential problems with SEC over the past two years. At this stage, the SEC does not consider this cryptocurrency a security. However, depending on its properties and behavior, the attitude may be revised. So, Grant Gulovsen, the founder of the law firm Gulovsen Law Office, in his article suggests that Ethereum 2.0 SEC may well be considered a security.

    SEC vs. Enigma

    Enigma raised $45 million during an ICO in 2017. As with TON, the SEC saw unregistered securities in them.

    After several court hearings, the Enigma organizers surrendered and pleaded guilty. Enigma representatives agreed with the decision to pay a $500,000 fine and assured they were ready to return investor funds.

    The company will register its tokens as securities and will be able to sell it on the exchanges in the future.

    The fight of SEC with cryptocurrency exchanges and other entities

    Not only cryptocurrencies but also crypto exchanges fall under the special attention of the SEC: for trading those tokens that the Commission recognized as unregistered securities.

    However, in the case of the crypto exchanges WeExchange and BitFunder there was another point of accusation — the theft of more than 6 thousand Bitcoins.

    Also noteworthy is the case against AriseBank for fundraising for fraudulent purposes. It was supposedly a decentralized bank providing consumers with services with more than 700 cryptocurrencies.

    SEC also fined the Russian portal ICORating $269 thousand for not reporting rewards for advertising, thereby misleading users.

    In June 2019, the SEC filed a lawsuit against the Canadian company Kik Interactive. In September 2017, the company raised $98 million in two rounds of ICOs by selling KIN tokens. This was done using SAFT contracts, a promising option tool. If the case wins, the SEC can cross out all SAFT projects as a whole.

    There are many other examples of SEC prohibitions: the fine of the unregistered EtherDelta exchange, suspension of the Simex exchange for false information, the charge of 1Broker for money laundering, the closure of the cryptocurrency hedge fund Crypto Asset Management for misleading users, the establishment of a list of conditions for an air charter and air taxi service TurnKey Jet, which will help their tokens not be considered a security.

    Some celebrities also suffered from illegal advertising. So, the SEC accused boxer Floyd Mayweather Jr, music producer Khaled Khaled, actor Steven Seagal of illegally advertising an ICO.


    The SEC is officially positive about blockchain technology, but it is extremely wary of the ICO of most cryptocurrencies and closely monitors the activities of cryptocurrency exchanges falling under US jurisdiction. Separately, Bitcoin and Ethereum have no special problems, but the rest of the cryptocurrencies usually fail to enter the US market and carry out ICOs without the Commission's oppositions. This suggests that while US regulators do not want to give freedom to the cryptocurrency market.