May 17, 2018

The SEC’s “”: Investor Protection As Performance Art!

I’ve been impressed by the FTC’s use of its “Competition Matters” blog to provide antitrust guidance – and I’ve wondered why the SEC was so. . . well. . . “stodgy” in its approach to this kind of thing.  Then this press release with the headline “The SEC Has an Opportunity You Won’t Want to Miss: Act Now!” hit my inbox with the following news (also see this WSJ article):

Check out the SEC’s Office of Investor Education and Advocacy’s mock initial coin offering (ICO) website that touts an all too good to be true investment opportunity. But please don’t expect the SEC to fly you anywhere exotic—because the offer isn’t real.

The SEC set up a website,, that mimics a bogus coin offering to educate investors about what to look for before they invest in a scam. Anyone who clicks on “Buy Coins Now” will be led instead to investor education tools and tips from the SEC and other financial regulators.

So I clicked on the link, and I’ve got to say it’s about the most out-of-character thing I’ve ever seen the SEC do – right down to having the Chief Counsel of the SEC’s “Office of Investor Education & Advocacy” portray’s fraudster-in-chief.

I don’t know that I’d put this on the same level with Andy Kaufman’s stuff when it comes to performance art, but it’s pretty good for government work!

“The Crypto Deals. . . Have Lots of Fraud. . . Deep in the Heart of Texas”

The SEC’s fraud warnings about coin deals seem pretty timely. For instance, this Jones Day memo says that Texas blue sky regulators went hunting for fraud in crypto deals – and found a whole bunch of it. Here’s the intro:

As the price of bitcoin rose to unprecedented levels in 2017, regulators began focusing more enforcement resources on cryptocurrency offerings, both at the federal and state levels. At the state level, the Texas State Securities Board (“TSSB”) has led the way. In late 2017, the TSSB quietly launched an investigation into cryptocurrency offerings being made to Texas investors.

The TSSB announced the results of that investigation last month, indicating that it had found widespread fraud in cryptocurrency offerings. As a result of that investigation, the TSSB has brought nine enforcement actions over a span of less than six months. Given the growing investment in cryptocurrencies, we expect to see continued use of enforcement actions by the TSSB and other state regulators as one of the principal tools to regulate this growing market.

We’ve previously blogged about how the blue sky cops are on the crypto beat – and The Lone Star State’s experience suggests that bad guys are not in short supply.

ICOs: Are They or Aren’t They?

The SEC didn’t come up with the name “” out of thin air. Ever since it issued its 21(a) Report on ICOs last summer, the SEC has made it clear that it thinks tokens are “securities” under the Howey test.” Now, John Reed Stark reports that the first court test of this position is underway in a federal district court in Brooklyn. The issue is being contested in the context of a criminal proceeding in which the defendant has filed a motion to dismiss based on, among other things, an argument that the tokens he sold were not securities. The SEC has also brought civil charges in the case.

Oral arguments on the motion to dismiss were held last week – and the blog provides a link to the transcript. As for the outcome, John says it’s a slam dunk: “The SEC and DOJ will win. Easily. Quickly. Handily.”

John Jenkins