Tag Archives: initial coin offerings


SEC Aims to Rein In and Reign Over Initial Coin Offerings – Duck Test 3.0

Initial Coin Offerings [Finally] Get SEC Attention; The Duck Test 3.0.

For those who believe the US SEC is slow to react when reining in and/or reigning over new-fangled investment products, the evidence indicates you are accurate. After all, recent history regarding sub-prime debt sold to unwary investors, Madoff-style investment management scams, payment-for-order schemes advanced by exchanges, and high-octane exchange-traded notes unsuitable for retail investors are just a few of the topics that made it out of the gate and far into the fields before investor advocates rang the alarm bells at the front door of the US Securities & Exchange Commission.

There have been more than 160 of these ICOs this year, which have collectively raised more than $3 billion, according to data from research firm Coindesk. Before this year, ICOs had raised a total of about $300 million going back to 2014.

sec-ico-initial coin offering
SEC Chair Jay Clayton Photo: Andrew Harrer/Bloomberg News

In defense of the bureaucrats based in Washington, their job description is arguably less a function of evaluating investor-suitable products and Wall Street selling practices as opposed to their primary role of chasing the horse after its out of the barn. After all, the folks who offer SEC staff with new investment product insight and regulatory recommendations (and tickets to concerts and sports events) are highly-paid lobbyists who represent Wall Street investment banks that have an agenda–to make fees from selling investment products and to ensure there is as little as possible regulatory oversight on their activities. Thanks for reinforcing that view, Mr. Trump!

But, in the case of the latest innovative product known as initial coin offerings, where innovators are raising money for an assortment of business models through issuance of bitcoins vs traditional shares in a company, Wall Street banks are finding themselves short of having a controlling role in the underwriting, sale and secondary market trading of these ‘instruments.’ Whilst the likes of Goldman Sachs and other fintech-friendly firms are racing to find their sweet spots in the digital ledger, blockchain and bitcoin space, suffice to say those investment banks are not happy about losing out on what would have been tens of millions of dollars in underwriting fees that could have been generated from the more than 160 private placement offerings that raised nearly $3billion since the beginning of the year, as well as potentially hundreds of millions of dollars in potential underwriting fees based on the pipeline of ICO deals in the pipeline.

So, it should come as no surprise that despite the ongoing string of announcements about new ICO issuance, the SEC has seemed to be asleep at the wheel for months insofar as issuing any regulatory edicts, leading some cynics to suggest that lobbyists from Wall Street have more recently whispered into the ears of SEC Chair Jay Clayton and compelled him to assert the power of SEC over those conducting initial coin offerings.

MarketsMuse readers are directed to coverage by Prospectus.com, “SEC Invokes Duck Test for Initial Coin Offerings-ICO Alert” via this link

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