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SEC Chairman: Encrypting money technology and ICO may be disruptive and we will tighten regulation



Translator's Note: This article by Jay Clayton, chairman of the Securities and Exchange Commission (SEC), believes that cryptocurrency and ICO may be disruptive and that they can improve efficiency and change, but at the same time there is a big market Issues, requiring regulatory oversight, Clayton has asked the SEC's enforcement department to continue its vigilance in this area and to recommend that people who impose ICO violations of the federal securities laws be imposed.

The world's social media platforms and financial markets are talking about cryptocurrencies and "initial token distributions" (ICOs). There have been many stories of riches and dreams come true in the community. We heard the familiar chorus, "This time, it's different."

Cryptocurrencies and the ICO market are rapidly growing. These markets are local, national and international and involve more and more products and participants. They also raise a number of questions for investors and other market participants, some new and others old (but in a new form), including the ones listed below:

Is the product legal? Is it regulated and contains rules that protect investors? Do these products meet these requirements?
Is tokens issued legal? Are those who provide the product licensed?
Trading market fair? Can market prices be manipulated? When I want to sell cash, can I do this?
Are there any significant risks of theft or loss, including hacking?
To answer these and other important questions, we often need in-depth analysis, the answer depends on many factors. This statement represents my overall view of the cryptocurrency and ICO markets, focusing on two main groups:

"Volkswagen" investors
Market professionals, including brokerage dealers, investment advisers, exchanges, lawyers and accountants, whose behavior affects public investors.


Investors in the public thinking


Much has been raised regarding the cryptocurrency and ICO markets, including the fact that there are far fewer investor protections in the cryptocurrency market than in the traditional securities markets, and this in turn provides more opportunities for fraud and manipulation .

Investors should understand that so far, none of the ICOs have been approved by the SEC . The SEC has so far failed to approve the listing and trading of any exchange-traded product (such as an ETF) that is related to cryptocurrencies. If someone claims to have passed the SEC's approval today, you should be especially wary of it.

We also issue investment warnings, announcements, and notices on ICO's cryptocurrency-related investments, including for certain products and marketing by celebrity platforms. Please take a moment to read them. If you choose to invest in these products, ask questions and ask for clear answers. An additional list of sample questions might help.

As with any other type of investment, if the sponsor guarantees a return, if an opportunity sounds too distorted, or if you are forced to get involved quickly, be on your guard and your investment may run counter to your investment.

Please also be aware of these transborder markets and significant transactions that may occur on systems and platforms outside the United States. Your investment funds may quickly move to other countries without your knowledge. As a result, the risks may be amplified, including risks from market surveillance, such as the SEC may not be able to effectively chase bad behavior or recover funds.

To learn more about these markets and related regulations, read the Enrichment Currency, ICO, and SECRETARY SECTIONS.


Thinking of market professionals


I think ICO, whether it's securities or not, can be seen as an effective way to raise money for entrepreneurs and others, including innovative projects. However, any such activity involving the issue of securities must be accompanied by important disclosures, procedures, and other investor protection measures required by our securities laws. The change of securities issuance structure will not change the basic point of securities issuance. Our securities law must be followed. Put another way, replacing the traditional centralized ledger bookkeeping with a distributed blockchain bookkeeping may change the form of the transaction, but it does not change the substance.

I urge market professionals, including securities lawyers, accountants and advisers, to carefully read the survey report (21 (a)) we released earlier this year [5] and review our follow-up enforcement actions. In its 21 (a) report, the Commission applied the principle of long-term securities law to demonstrate that a particular token constituted an investment contract and therefore belonged to securities regulated by the federal securities laws.

After the release of 21 (a), some marketers tried to emphasize that the ICO tokens they proposed were not securities. Many of these assertions seem to elevate the form to substance. Just tokenizing or structuring a token as a "functional" token and offering some uses does not erase its security attributes. Sales of tokens and tokens that emphasize potential earnings based on business or regulatory efforts will continue to include the characteristics of US securities laws. I believe regulators and others, including securities lawyers, accountants and advisors, need to focus on their responsibilities. I urge you to be guided by our primary motivation for registration, the process of providing and the disclosure requirements (investor protection, and in particular, the protection of our public investors).

I would also like to remind that for those projects that do not determine whether the securities laws apply to these tokens in the first place, market participants should learn to calm down and usually require a permit to sell the securities. Experience shows that over-touted and volatile markets May be "pulled up" or other manipulation, fraud characteristics. In the same vein, I also remind those system operators that they may have violated the Securities Exchange Act of 1934 and run exchanges or brokers without boarding.

On cryptocurrencies, I want to emphasize two points. First, some cryptocurrencies do not appear to belong to securities, simply calling them "currencies" or currency-based products does not mean that they do not belong to securities. In launching an encrypted currency or product whose value is bound to one or more cryptocurrencies, the sponsor must (1) be able to prove that the currency or product is not securities , or (2) comply with the securities law Registration and other requirements . Second, brokers, dealers and other market participants that allow cryptocurrencies to be paid, customers to buy cryptocurrencies in the form of bonds, or other securities that use cryptocurrencies to facilitate securities trading, should be particularly cautious, including ensuring that their cryptocurrency activities are not disrupted Their anti-money laundering and KYC obligations, and as I said before, these market participants should treat cryptocurrency payments and other transactions as if they were cash transactions.


Additional discussion on cryptocurrencies, ICOs and securities regulation


Cryptocurrencies generally refer to items of intrinsic value (like cash or gold) that enable the purchase, sale, and other financial transactions. It can provide the same functionality as long-term currencies such as the U.S. dollar, the euro or the yen, but they do not have the support of the government or other agencies. While cryptocurrencies are designed and maintained differently than traditional currencies, their backers are still offering various potential benefits of cryptocurrencies, including (1) transactions without intermediaries, no geographical restrictions, (2) clearing and settlement synchronization (3) lower transaction costs compared to other payment methods, and (4) the ability to publicly verify transactions. Other often touted features of cryptocurrencies include anonymity and lack of regulation. Critics say these features may promote illicit trading of cryptocurrencies, and some so-called beneficial features may not prove to be effective in practice.

Some people say that cryptocurrencies are not securities and the corresponding cryptocurrency sales go beyond the SEC's jurisdiction. Regardless of whether the assertion is correct or not, any digital asset marked as cryptocurrency will depend on the characteristics of the particular asset being used. Anyway, it is clear that, like the SEC's concern about the impact of dollar, euro and yen trading on the stock market, we share the same interest and responsibility for cryptocurrencies.

ICO, coincides with the substantial growth of the cryptocurrency market, businesses and individuals are increasingly using ICO as a way to raise funds for their obligations and programs. Often, these products require investors to invest dollars or cryptocurrencies in return for a digital asset as a token.

These sales activities can take many different forms, and the rights of tokens can take many forms. A key question for all participants in the ICO market is: "Is this currency or token a security?" The securities law practitioners themselves should be very familiar and the answer depends on the facts. For example, a tokens participating in the Moon Book Club may not be covered by our law of securities, which may be an effective way for club operators to finance book purchases that effectively distribute these books to token holders . In contrast, many tokens appear to have gone beyond this structure, much like an unfinished publisher, with authors, books, and distribution networks appearing. This is particularly troubling when the promoters of these products stress the potential of these tokens in the secondary market. Profit from resale of tokens through the secondary market, or other monetization through tokens, are all important hallmarks of securities and securities issuance.

In general, the ICO structure I have seen involves the sale and sale of securities, the requirements for securities registrations that are directly related, and other investor protection clauses mentioned in the federal securities laws.

In general, these legal provisions state that investors should know what they are investing and the risks involved.

I have asked the SEC's law enforcement agencies to continue to exercise strong oversight in this area and to recommend that people who impose ICO on the law that violate the federal securities laws impose coercive measures.


in conclusion


We, the Securities and Exchange Commission (SEC), are committed to promoting capital formation. Encrypting money technology and ICO can be disruptive, it can improve efficiency, with change. I believe that the development of financial science and technology will help to promote capital formation and provide investment opportunities for institutional investors and major investors.

I encourage public investors to be open to these opportunities, but first they must ask good questions, ask for clear answers, and apply good common sense when implementing them. In advising clients, designing products and conducting transactions, market participants and their advisers should give careful consideration to our legal and regulatory guidance and our principled securities law framework in the performance of this framework in the face of new developments All are satisfying, they have existed for more than 80 years. We also encourage market participants and consultants to work with the SEC staff to help them analyze under the Securities Act. SEC staff will provide assistance on these issues, contact: FinTech@sec.gov


Sample questions about cryptocurrencies or ICOs

1, in the end I and who is in the contract? 
Who is posting and funding this product, what is their background? Do they provide a complete description of the product? Do they have a clear written business plan? 
Who is promoting and marketing this product, what is their background? Do they have a license to sell their products? Do they pay for promotional products? 
Where is the business office?

2, Where did my money go, what would it be for? Will my money be used to cash in to others? 
3, what is my specific investment rights? 
4, there are financial statements? If so, who is auditing? 
5, transaction data? If so, is there any way to validate it? 
6, How, when, and when I withdraw my investment "For example, am I entitled to refund the token to the company and receive a refund? Can I resell tokens? If yes, is there any limit to my resale ability? 
7. What happens if I lose my key if it involves a digital wallet? Can I still access my investment? 
8, if you are using blockchain, is it public? Has the code been released, has an independent cyber security audit? 
9, whether the sales of tokens comply with the provisions of securities laws, if not, the stability of the enterprise and the investment value is affected? 
10, in the fraud, hacking, malware or business prospects downturn, what legal protection measures may be? If something goes wrong, who is responsible for returning our investment? 
If I have a legal right, can I enforce them effectively? If my rights are violated, is there enough money to compensate me?