When Does an IEO Break U.S Securities Law? SEC's Valerie Answers

Wilfred Michael 

Wilfred Michael

News reporter

14 May 2019,
13:15
When Does an IEO Break U.S Securities Law? SEC's Valerie Answers

Initial Exchange Offerings (IEOs) are one of the most trending developments in the cryptocurrency industry with several projects including BitTorrent, Matic, several others using the channel to raise billions from investors on crypto exchanges.

However, just like its predecessor, the Initial Coin Offering (ICO), top U.S Securities and Exchanges Commission (SEC) official, Valerie Szczepanik has confirmed that IEOs could still break U.S securities laws.

According to Szczepanik, such lack of compliance happens if a U.S based cryptocurrency exchange collects a listing fee for an IEO and then sells the tokens to either U.S residents or foreigners.

The same non-compliance could also happen if the crypto exchange even though based outside the U.S sells cryptocurrencies to the country's residents.

Szczepanik explained that in either case,

“Platforms seeking to list these tokens for a listing fee or bring buyers to the table for issuers are probably engaging in broker-dealer activity,”

If they carry out such activity without meeting regulatory requirements (licensing provisions) for securities dealer, the top official said they would be in “big trouble ”

By using the term ‘big trouble’, Sczepanik was likely referring to possible enforcement actions against any exchange that fails to comply with the U.S Securities law.

Stmarket.co reported one of such SEC enforcement actions against EtherDelta's co-founder, Zachary Coburn whom the regulators charged for operating an unlicensed securities exchange.

Meanwhile, Sczepanik did not mention that any exchange has so far broken U.S Securities law concerning IEOs since most of them strictly say on their token sale page that they do not sell tokens to U.S investors.

Even the recent $1 Billion IEO conducted by legally-troubled crypto exchange, Bitfinex, did not sell to U.S investors with the operator itself based in Hong-Kong.

 

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